Traditionally, many Software-as-a-Service (SaaS) providers viewed compliance as an afterthought. Although they acknowledged its importance, it was rarely a priority. As a result, many SaaS providers are in jeopardy today due to the rapidly evolving nature of data and the increasing global compliance regulations. In addition to the rapid increase in compliance regulations, organizations are also required to properly implement them through their compliance processes.
There have been few announcements or deadlines associated with the implementation of new data/compliance regulations. The previous “waves” of regulations have been well-publicized, and the regulations appear similar on the surface. However, there is a significant difference between the previous methods of enforcing compliance regulations and the current approaches.
Enforcement Is No Longer Passive
Historically, regulatory agencies have relied primarily on enforcement through voluntary compliance (self-reporting) and responding to incidents of non-compliance or received complaints. However, this approach to enforcement is quickly diminishing. Rather, regulatory agencies are now utilizing/proactively monitoring systems that allow them to monitor organizations’ data processing activities without requiring a violation to occur.
Therefore, organizations are now being monitored on an ongoing basis for compliance—except during a crisis. Regulatory agencies are assessing organizations’ internal processes for obtaining consent from individuals, where data is stored, and how third parties are involved in data processing. Organizations that do not fully comply with expectations may receive serious warnings or face penalties.
The current state of enforcement has shifted from “reactive” to “proactive,” making it an opportune time for organizations. Therefore, no organization should consider that there is no likelihood that something negative has occurred that would preclude it from being subject to an enforcement action.
Proof of Compliance Is Now Required, Not Just A Claim
One of the biggest changes in compliance is the demand for proof of compliance through demonstrable evidence. The days of simply saying, “I comply with regulations,” and moving on are over; it is no longer sufficient to “say” that you comply; now you must “prove” it by providing detailed records and systems.
Some of the items that fall into this category are as follows:
- Clearly defined data flow maps
- Audit trails of user data
- Documented consent mechanisms
- Mechanisms for internal accountability
Most SaaS companies, particularly start-ups, are experiencing a tremendous shift in their operations as they meet compliance requirements, because building systems to track and justify every data-related event will require a great deal of time, financial resources, and expertise. In summary, compliance is becoming part of the infrastructure rather than just part of policy.
The Complexity of Cross-Border Data
Lots of SaaS providers operate all over the world; however, this has become much more difficult with the recent development of local data regulations. Governments are tightening regulations governing where and how data can be stored and transferred between countries.
Data localization laws will ultimately force businesses to re-evaluate how they architect their environments. Instead of using a single, centralized system for the entire world, companies will need to use multiple regional or cloud-hosted systems, thereby compounding existing layers of cost and complexity.
The technical determination of where to host customer data is no longer just a technical decision; it is also a legal one.
Costs Will Continue to Rise
The various changes in regulations come at a price—and compliance has gone from being an overhead, fixed cost to being a growing area of investment for businesses.
For businesses, including:
- Legal help (advisory and interpretation of policies)
- Infrastructure for cybersecurity
- Internal compliance teams (legal)
- Third Party Audits and Certifications
For small- to mid-sized SaaS businesses, this added compliance will directly affect their ability to grow and become profitable. For larger businesses, the challenge will be scaling compliance across multiple products and global locations without stifling their ability to innovate.
Whether small or large, the growing cost pressure and compliance workloads are a reality.
Preparedness Gap
Despite clear warnings, many businesses remain unprepared for this new landscape. One major challenge in preparing businesses for compliance is a misperception that a large business will receive more scrutiny as compared to a small business — but, regulations are increasingly putting small businesses under the same level of scrutiny as large enterprises; e.g., businesses that deal with and house a high volume of users’ sensitive data.
The second challenge is execution; just because you understand regulations does not make it easy to implement compliance within your business. Today’s successful businesses rely on all teams (legal, tech, product, and operations) to work together when complying with various regulations. If teams are not aligned, then businesses will have compliance gaps.
The gap between awareness and compliance execution today is where all major risks lie.
Technology: Solution and Risk
The Use of Technology to Mitigate Risk and Comply; Protect Against Compliance and Risk: Technology is revolutionizing how businesses create systems to manage and comply with regulations. Automated systems, artificial intelligence, and compliance dashboards are enabling businesses to have greater visibility into how to maintain and ensure compliance.
On the other hand, there is a downside to using these tools.
As regulations increasingly focus on SaaS applications, regulators are beginning to challenge the operational aspects of automated systems. Issues related to algorithmic transparency, data security,, and the way compliance with regulations is determined are now being scrutinized by regulators. As a result, businesses are now required to ensure their automated systems comply with regulations.
So while technology eliminates the need for manual processes, it also adds additional layers of scrutiny to automated systems. Hence, companies that rely on the latest technology are required to continually evaluate if their tools are compliant as they apply them to their operations.
What Should Businesses Do?
SaaS companies need to think of compliance differently. Instead of reacting to new regulations as they come out, businesses need to build the necessary infrastructure and operational processes to anticipate and adapt to how they will be in compliance with regulations going forward.
To accomplish this:
• Invest in building a scalable compliance infrastructure
• Establishing clear policies that are regularly updated internally
• Training staff members to ensure they understand compliance and associated issues/costs
• Staying informed about changes in regulatory policies on a real-time basis.
Conclusion
Compliance needs to be thought of no longer as just a “legal” obligation, but rather as an integral part of your business strategy.
In SaaS companies, it has gone from the question of whether compliance is important to how do we successfully comply with regulations? To succeed, companies that respond to and/or adapt to change sooner will build credibility with their customers. Ultimately, in a data-oriented economy, gaining credibility is the best overall advantage.
Source: Data Governance Regulations and Compliance Essentials
