How GDPR is Shaping Data Privacy in the Financial Industry

In the era before the General Data Protection Regulation (GDPR), we had the 1995 Data Protection Directive (DPD), and the drive was simple. To protect fundamental human rights and individual freedoms concerning how different sectors process personal data.

However, the 1995 DPD had a major limitation, which was giving member states in the European Union the autonomy to modify their own privacy laws, and that came at a cost. Many firms had no option but to adhere to multiple privacy requirements each time they rendered their services internationally. It was every bit of a hassle.

While there were many speculations surrounding GDPR, it emerged as the ideal replacement for DPD not just because businesses in the EU can now operate under a common regulatory policy, but also because GDPR was designed to solve data privacy issues in this age of internet and modern technologies. 

Unfortunately, not everyone likes the GDPR. In fact, many perceived it as a revolution while others called it a ticking time bomb to express their displeasure. Well, It’s been seven years and the narratives are changing. 

As a finance manager, this article explains GDPR compliance, what it means to your financial institution, and how you can easily comply with the privacy laws. Keep reading to learn more.

How GDPR applies to companies in financial services 

Before GDPR was affected in May 2018, financial institutions had always maintained a strict code of conduct in managing personal data. However, handling data manually was a hassle especially when businesses expanded and chunks of customer data started piling up. 

Now that technologies are automating the data management processes, the European Union established the GDPR to ensure all sectors that handle personal data including financial institutions like banks and investment advisory organizations remain cautious when dealing with compliance. 

It doesn’t matter if your firm isn’t located on the European axis, as long as your customers are EU citizens, you’re obliged to understand what regulatory provisions GDPR has for your business and how it impacts your operations.

How GDPR is impacting financial industries 

In this age of cybercrimes and data theft, everyone is becoming increasingly attentive to data privacy, and more willing to take extra measures to protect it. Given that, more than 70% of consumers mentioned that they’ll stop doing business with companies that do not prioritize their sensitive data. Fair enough, don’t you think?

As a finance institute, you must have robust cybersecurity measures to stay GDPR compliant. Considering that all the customer data that your firm will be handling has security requirements under GDPR. There can be no room for mistakes. Here are some things to watch out for if you want to stay compliant: 

• Client’s consent approval 

The GDPR standard for consent is quite explicit. It’s about giving users full authority on how to control their data. That’s why company websites use cookies to seek user consent on how to use their data each time they visit their site. These cookies allow your finance services to monitor user activities and personalize content that enhances their overall experiences. 

Since cookies limit how much control your finance services can have over users’ data, server-side tracking GDPR is becoming a perfect alternative for businesses to stay privacy-compliant and independent of third-party services like Google. 

Typically, server-side tracking offers you a significant edge, and that is its ability to operate on a centralized location rather than your client’s browser. This implies that you can track user behaviors and browsing patterns without relying on cookies. What more could you ask for?

Given this, you have your user’s financial data at your fingertips. Proper security measures can then be introduced to prevent unauthorized access and data breaches. This ensures better compliance with GDPR as data can be handled with optimum security.  

• Right to data erasure

Under the GDPR, there’s a fundamental right called the “right to be forgotten” or “right to erase”. As the name implies, it puts your financial services under the obligation of deleting a customer’s financial data from your database if they make such requests. 

To be more explicit, this data extends beyond the ones in your company records, it includes the information you’ve shared with other service providers. 

As a financial service provider, you should possess a reliable data catalog and tracking capabilities to ensure users get efficient and nearly instantaneous deletion of their sensitive data upon request. These can be done easily in this era of AI and automation, and you need not worry about handling your daily inventory manually.  

While customers may find that intriguing since they can exercise their rights as they deem fit, it can be difficult for financial services that store financial records to maintain data compliance.   

• Data breaches and compromise

The GDPR takes an uncompromising stand in addressing cases of data breaches, as such, you must have an adequate security strategy. Before a security breach can be regarded as a personal data breach under GDPR, your customer’s data must either be damaged, tampered with, stolen, or accessed without proper authorization. 

Data breaches can be calamitous for your business. So, in such an occurrence of a data breach, GDPR states that you must file a detailed report of the security threat to the supervisor in charge with an ultimatum of 72 hours from the time the breach was confirmed. 

When filing a report, you should specify the number and class of affected customers as well as the contact details of the data protection officer to facilitate further investigations. Aside from that, your customers are protected by GDPR, so they must be notified of the breach without delay. 

• Privacy by design 

GDPR is not lenient with cases of non-compliance and can be stiff when imposing penalties. Privacy by design emphasizes that data protection must be the framework of all business operations, policies, and projects in all financial institutions.   

The downside of this is that your organization will take full responsibility for data protection and compliance. Here, it’s not just about reporting breaches and how data-compliant you are, you need to defend your claims with organizational and technical controls.

If perchance, your business fails to meet the requirements as mandated by GDPR, it can lead to you incurring huge fines and damaging your business reputation. These fines can sum up to 20 million euros or 4% of your global annual revenue (whichever is greater). 

• Vendor management

For your financial institute to be fully operational, it must rely on a stream of IT systems that serve as a medium through which personal client data is transferred. As GDPR is particular about customer data privacy, you must understand how your data flows across these IT applications. 

Nowadays, every business outsources development and collaborates with third-party agencies, which means your client's data will be regularly accessed by external vendors, thereby increasing the risk of data exposure. 

Under GDPR, vendors are expected to stay compliant with data privacy regulations. It doesn’t matter if they’re non-EU firms, so long as they are in collaboration with EU organizations or serve EU citizens, they must comply with GDPR provisions while sharing data beyond borders. 

GDPR is particular about businesses and vendors owning up to customer data accountability, so each time you hire or partner with external agencies, ensure you create robust and transparent procedures to handle customers’ sensitive data. 

• Data protection officer

If you own a large-budget financial organization and you deal with chunks of customer private data, you’ll most likely be required by GDPR to hire or seek the expertise of a Data Protection Officer.  

A DPO’s primary task is to ensure that your organization stays GDPR compliant when managing private data. The DPO will also be required to monitor the processes of customer segmentation, personalized marketing, and cyber security.

As data security is paramount, the DPO is tasked with educating and training your staff on data protection principles and GDPR requirements. This keeps them aware of their roles in handling data and fosters a work culture that encourages data privacy and security throughout your firm. 

The roles of a DPO are quite extensive; they also serve as liaison officers between you and supervisory authorities, reporting cases of data breaches, and helping them investigate your data processing workflows. 

Maintaining GDPR compliance and other financial regulations 

It’s not surprising to see many financial organizations in the EU member states raise an eyebrow at the implementation of GDPR. No doubt, it can be difficult to comply with so many regulations within a short time frame. 

However, automated solutions have been making the rounds recently, and helping financial institutions overcome the complexities of GDPR compliance. Now, you can automate the processes of data extraction, security measures, third-party risk management, breach detection, and several complex procedures for achieving compliance.