Data Privacy in Financial Services: Why and How?

The evolution of the financial services industry has seen bricks replaced by clicks as our reliance on the internet becomes all-consuming. To keep pace with this shift online, the integration of digital technologies and data-driven solutions has become a strategic imperative for dynamic organizations in the sector.

In a bid to remain competitive, meet evolving customer expectations, and drive operational efficiency, traditional brick-and-mortar infrastructure has given way to online banking, mobile apps, and contactless payments – making digital data the lifeblood of the industry.

The provision of this online convenience comes with a huge responsibility for financial service providers: they must ensure the deluge of customer data they handle in the ordinary course of business is not misused or accessed without authorization.

Failure to do so, leading to the accidental or unlawful destruction, loss, alteration, or unauthorized disclosure of, or access to, personal data, can result in serious consequences – notably, reputational damage and financial penalties for non-compliance amid an increasingly stringent regulatory environment. 

Consequently, data privacy has been shoved to the top of the corporate agenda for firms in the sector. This touchstone of reputability provides consumers with the trust they crave when sharing their personal information. This data privacy guide will help develop your understanding of this essential discipline within the financial services industry.

Data privacy in financial services: what is it and what needs protecting?

According to IBM, “Data privacy, also called ‘information privacy’, is the principle that a person should have control over their personal data, including the ability to decide how organizations collect, store, and use their data.”

Data privacy within the financial services space refers to the protection of personally identifiable information (PII) from misuse or unauthorized access. PII in the context of the industry typically refers to any data that can be used to identify an individual in relation to their financial affairs. This includes:

• Personal information: Full name, home address, and date of birth.

• Contact Information: Phone numbers, email addresses, and sometimes social media handles.

• Identification Numbers: National Insurance number (UK), Social Security Number (US), passport number, driver's license number, and any other government-issued identification numbers.

• Financial Information: Bank account numbers, credit/debit card numbers, account balances, transaction history, income details, and credit scores.

• Authentication Data: Passwords, security questions/answers, PINs, and biometric data used for authentication purposes.

The inherent need for financial firms to gather, organize, and exchange everything from email addresses to credit card numbers creates a data economy. Embedding data privacy within this ecosystem requires proactive steps like obtaining user consent before processing data, protecting data from misuse, and enabling users to actively manage their data.

Five fundamental principles of data privacy

Organizations typically use data privacy frameworks to guide their strategy, including the NIST Privacy Framework and the Fair Information Practice Principles. If we distill them and the regulations that underpin them, five common principles appear that are used to inform data privacy policies, processes, and controls within financial services.

1. Access

Data subjects have a right to know what personal data an organization holds on them. They should be able to access their data on demand and update or amend it as required.

2. Transparency

Data subjects have a right to know who holds their personal data and what they do with it. Therefore, organizations should communicate what they are collecting and how they intend to use it. Once collected, organizations should keep them informed about data processing, including any changes to how data is used and any third parties the data is shared with. 

3. Consent

Data subjects should be able to provide organizations with consent for data storage, collection, sharing or processing whenever possible – and withdraw it at any time. If consent is not provided, organizations should have a compelling reason to keep or use the personal data, such as a public interest use or legal obligation. 

4. Quality

To avoid inaccuracies that lead to privacy violations, organizations should ensure the data they collect, and hold is accurate. For example, if a company holds an old address, it could send sensitive documents to the wrong party accidentally. 

5. Security

Organizations should implement processes and controls to protect the confidentiality and integrity of user data – from training employees around compliance and working with third parties with robust privacy controls to implementing technical controls like Identity and access management (IAM) solutions.

What regulations govern data privacy?

The regulatory screw has been tightened across the globe in a bid to protect the privacy of the digital data that underpins industries like financial services. Examples of robust regulations that have been implemented include the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) – both of which came into effect in 2018.

GDPR

The GDPR is designed to give individuals more control over their data and harmonize data protection regulations across Europe. It imposes strict rules on how organizations collect, store, process, and transfer personal data. It also grants individuals various rights regarding their data, such as the right to access, rectification, erasure, and the right to be forgotten. 

GDPR applies to any organization that processes the personal data of individuals residing in the EU, regardless of where the organization is located. Penalties for non-compliance can be as high as €20m or 4% of annual global turnover, whichever is higher.

The UK GDPR is the UK’s post-Brexit version. It’s very similar to the EU GDPR, so organizations that comply with it are likely to comply with the UK version.

CCPA

The CCPA grants California residents various rights regarding their personal information held by businesses, including:

• Right to know: Consumers have the right to request disclosure of what personal information is collected, used, shared, or sold by a business.

• Right to delete: Consumers have the right to request the deletion of their personal information held by a business.

• Right to opt-out: Consumers have the right to opt-out of the sale of their personal information. Businesses must provide a clear and conspicuous link on their website titled "Do Not Sell My Personal Information" to facilitate this opt-out.

• Right to non-discrimination: Businesses are prohibited from discriminating against consumers who exercise their privacy rights under the CCPA, such as denying goods or services or charging different prices.

The CCPA applies to businesses that meet certain criteria, including those that do business in California, collect personal information of California residents, and meet specific revenue or data processing thresholds. How can financial service providers ensure data privacy?

The following steps can help organizations establish a robust data privacy program that meets compliance requirements and protects sensitive information.

Data inventory

They should start by understanding the data compliance regulations that are relevant to them. This generally depends on their industry and geographical location. An inventory should then be developed outlining the types of data the business acquires, handles, and retains, including how it’s obtained, where it’s stored, and who has access to it.

Access controls

Robust access controls – such as user authentication, role-based access, and the encryption of sensitive data – will ensure that only authorized personnel can access PPI. An up-to-date identity and access management program can enhance this.

Data storage

They should implement robust measures that ensure data is stored securely, both physically and digitally. This typically involves deploying encrypted storage solutions, firewalls, and access logs.

Compliance training

By educating staff about data compliance, they can make sure every level of the organization understands the regulations, the significance of data privacy, and their role in achieving it. Regular training sessions can help ensure everyone stays informed about this dynamic requirement. 

Data handling policies

By establishing transparent data handling policies and procedures throughout the organization everyone will understand the correct data management practices – from collection, use, and processing to transfer, disposal, and sharing.

Regular audits

Periodic audits will verify the effectiveness of data compliance measures and help identify potential vulnerabilities and areas that need improving.

Response plan

A well-defined response plan will empower the organization to respond proactively to a data incident. Knowing how to respond effectively and promptly will minimize damage and comply with the requirements of regulatory frameworks.

Data privacy: the future 

As the amount of data, handled by financial service providers, continues to grow exponentially amid consumer demand for online convenience, their responsibility to ensure the privacy of this data is evolving – from complying with new regulations to managing the proliferation of artificial intelligence technologies.

To maintain regulatory compliance, a robust security posture, and competitive advantage, they must adopt a proactive approach to data privacy that keeps pace with its rapid evolution by monitoring change and instilling the agility needed to adapt to it.