Financial Services Regulatory Compliance and Colocation Data Centers

Financial Services Regulatory Compliance and Colocation Data Centers

July 28

For the financial services industry, regulatory compliance is a topic that simply cannot be ignored. Handling confidential customer data in all its varied forms has become a routine, even essential, task for the industry, and firms that ignore the legal obligations they have to keep that data secure do so at significant peril. In 2020, for instance, Capital One was fined $80 million by the US government for a data breach resulting from a failure to identify and manage risk during a data migration in 2019.

While this fine may have been the equivalent of pocket change for a financial institution that netted almost $30 billion in total revenue that year, failure to meet regulatory compliance standards could very easily destroy a smaller financial services company. A violation of PCI DSS standards, for instance, could cost a company between $5,000 and $100,000 every month until the problem is addressed. In addition to the fines themselves, there’s the potential for subsequent lawsuits filed by customers and clients as well as the likelihood of long-term brand damage in the public eye. The aforementioned Capital One data breach, for instance, also resulted in a $190 million class action settlement in early 2022.

Financial Services and Data Security

With so much data being shared over sprawling financial networks, it’s more important than ever for the industry to ensure that information is both protected and readily accessible. As the facilitators of many company networks and the caretakers of sensitive data, colocation data centers take compliance seriously to protect their customers. That’s why every financial services organization migrating assets into a colocation data center should treat compliance as an essential capability rather than an extra benefit that’s nice to have.

At their core, financial services compliance consists of rules and regulations imposed by governments or independent industry bodies. These guidelines are used to evaluate the measures organizations take to guard against data breaches as well as the systems they use to  store, access, and share sensitive data. Financial institutions not only need to make sure that their internal data security controls meet regulatory requirements, but also that their vendors have the right processes and protections in place. If one of those vendors suffers a breach, the company that contracted them will be held responsible for not properly vetting their security controls and ensuring their compliance status.

Colocation Data Centers Provide Compliance Peace of Mind

For a data center, providing compliance assurances has to be the default setting and establishes a relationship of trust built on transparency and security. By providing infrastructure that meets compliance standards for data security, a facility can help their customers to better mitigate business risks and enhance reporting procedures. The best facilities build their infrastructure from the ground up with compliance in mind rather than viewing it as a “bolt-on” service to be incorporated after the fact.

Due to the broad scope of regulatory compliance, data centers are quite transparent about what certificates/attestations they have acquired. If a facility is hesitant to provide proof of compliance, they not only might be misleading their customers, but they could very well be breaking the law. By requesting proof of compliance, organizations can protect themselves from hefty fines and potential legal action while also gaining the peace of mind that comes from knowing a data center is doing everything in its power to protect their valuable data.

To demonstrate compliance, data centers must go through a formal auditing procedure by which an accredited or authorized agency assesses and verifies that the facility’s practices are in accordance with the established requirements or standards for the regulation in question. Once this assessment is completed, a data center receives a certificate or attestation report that verifies its compliance with legal requirements.

Key Financial Services Compliance Standards for Data Centers

SSAE 18 and SOC Reports

Service Organization Control (SOC) reports are essential for evaluating a data center’s security controls. They are frequently issued under the SSAE 18 standard, which is overseen by the American Institute of Certified Public Accountants (AICPA). Implemented in 2017, the latest version of the Statement on Standards for Attestation Agreements (SSAE 18) lays down guidelines for internal controls over financial reporting to protect client data. More importantly, the standard is also used to evaluate how well a facility’s policies and procedures maintain information security under specific trust criteria.

There are three categories of SOC reports that can be produced during an audit, with each one serving a slightly different role. 

The first two SOC report categories come in two forms:

  • Type I: Audits the effectiveness of security controls in place at a specific point in time.
  • Type II: Audits the effectiveness of security controls in place over a designated period of time (usually six to twelve months).

SOC 1: This engagement reports on whether a service organization has effective internal controls in place pertaining to financial reporting in order to protect client data.

SOC 2: This audit assesses internal controls related to security, including data availability, confidentiality, privacy, and processing integrity.

SOC 3: Similar to a SOC 2, this report attests to the suitability of internal security controls without providing any specific descriptions of the organization’s systems. Whereas SOC 1 and SOC 2 reports are available to customers who use the provider’s services, a SOC 3 report is intended for the general public, allowing potential customers to see that the organization is compliant without revealing any mission-critical or proprietary information about their operations and systems. There is no designated Type I or Type II for a SOC 3 report.

ISAE 3402 and ISAE 3000 

The International Standard on Assurance Engagements (ISAE) is an international standard developed by the International Auditing and Assurance Standards Board (IAASB). Broadly similar to SSAE 18, ISAE compliance is also attested through SOC reports. For international markets, an ISAE 3402 report is the equivalent of a SOC 1 report, while an ISAE 3000 report is the equivalent of a SOC 2 report. Both attestations are available as Type I or Type II reports.

ISO/IEC 27001

Published jointly by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC), ISO/IEC 27001 is an integral component of risk management processes involving private and sensitive data. The international standard assesses how well an organization identifies risks, addresses vulnerabilities, and conducts ongoing training to keep customer information secure.

PCI DSS (Payment Card Industry Data Security Standard)

The Payment Card Industry Data Security Standard (PCI DSS) is one of the financial industries most important compliance standards. PCI DSS 4.0 creates strict controls regarding the handling of personal financial data involved with electronically processed credit card payments. Any company that processes credit card payments or stores financial data electronically is required to comply with PCI DSS standards, which makes it a vital attestation for any data center to possess.

Why Evoque Data Centers Are Ideal for the Financial Services Industry

With multiple colocation facilities positioned to deliver low-latency service in key North American markets, Evoque Data Center Solutions is well-situated to meet the needs of the financial services industry. Rather than maintaining an on-premises data solution that requires ongoing monitoring of security controls and conducting regular audits (which are both expensive and challenging to prepare for), financial services companies can instead migrate their IT assets into a colocation data center that provides the necessary infrastructure and processes to support their operations.

Our highly secure data center locations are designed with compliance in mind and undergo strict auditing to ensure that our controls and processes exceed the most demanding regulatory standards for the financial sector and beyond.

To learn more about Evoque’s commitment to regulatory compliance for customers in the financial services industry, talk to one of our colocation experts today.