It applies strict protocols to businesses that collect, process, or store personal data within the EU/UK, as well as to businesses outside the EU/UK that handle the personal data of EU/UK citizens.
It is a stringent regulation that must be adhered to in order to do business with EU/UK countries. Failure to comply can lead to severe consequences such as GDPR non-compliance fine of up to €20 million or 4% of a company's total global turnover, and potential reputational damage.
However, businesses often struggle with GDPR compliance due to the regulation’s complexity, particularly in the financial sector. If your business is one of those facing challenges regarding GDPR compliance, this article is for you. Today, we’ll explore some common GDPR compliance challenges and provide solutions to overcome them.
GDPR challenges in financial sector
1. Data volume and complexity
Financial organizations often handle vast amounts of personal and sensitive data, such as banking details, personal identifiers, and transaction histories. Managing this vast amount of private data is not easy, as compliance with GDPR requires ensuring lawful processing Article 6 and obtaining explicit consent Article 7, which can be daunting.
Solution
To effectively manage this challenge, organizations should implement a data governance strategy that involves categorizing data based on its sensitivity and establishing clear processes for lawful processing as outlined in Article 6. Utilizing data management tools, such as Informatica, Collibra, Microsoft Azure Purview, and TrustArc, can help automate tracking and monitoring, thereby simplifying compliance efforts.
Additionally, organizations can create simplified consent mechanisms that adhere to GDPR Article 7 requirements, ensuring that obtaining and managing explicit consent is both user-friendly and efficient.
2. Data subject rights
The GDPR grants data subjects various rights as per GDPR Article 15, Article 16, Article 17, and Article 20 such as the right to access, correct, or delete their personal data (right to be forgotten), as well as the right to data portability. Financial institutions often struggle to fulfil these requests promptly due to the complexity and fragmentation of their data systems.
Solution
To address this issue, organizations should implement a centralized data management system that consolidates personal data across various platforms. This system should be designed to facilitate quick access and retrieval of data to ensure timely responses to data subject requests. Automating the process for handling requests, such as the right to access and the right to be forgotten, can significantly reduce the complexity and fragmentation of data systems.
3. Cross-border data transfers
Financial institutions often operate globally and transfer personal data across borders. Ensuring GDPR compliance during these transfers, especially to countries without adequate data protection laws, is a significant challenge. Chapter V of the GDPR sets out strict requirements for such transfers, mandating that organizations use mechanisms like Standard Contractual Clauses (SCCs) or obtain adequacy decisions to ensure the data receives the same level of protection as within the EU/UK. This adds complexity to managing global data flows while staying compliant.
Solution
To ensure compliance, organizations should establish and document clear transfer mechanisms, such as Standard Contractual Clauses (SCCs) or Binding Corporate Rules (BCRs). Conduct thorough assessments of the data protection laws of the recipient countries and consider additional safeguards, such as encryption, to protect data in transit. Regularly review and update these agreements to ensure continued compliance.
4. Third-party risk management
Many financial organizations often rely on third-party service providers for processing and managing data. Ensuring that these third parties comply with GDPR and implementing data processing agreements (DPAs) that reflect this can be complex and resource-intensive.
Solution
To mitigate these risks, conduct thorough due diligence on all third-party vendors to assess their GDPR compliance. Implement comprehensive DPAs that clearly outline the responsibilities of each party concerning data protection. Regularly monitor third-party compliance through audits and assessments, ensuring that any non-compliance is promptly addressed.
5. Data breaches
Financial entities are prime targets for cyberattacks. Under GDPR Article 33, organizations are required to report data breaches within 72 hours of becoming aware of the breach. Ensuring rapid detection, investigation, and reporting of breaches is a constant challenge in this fast-paced industry.
Solution
To prepare for potential breaches, develop and maintain a sturdy incident response plan that includes rapid detection, investigation, and reporting protocols. Invest in advanced monitoring and threat detection technologies to quickly identify breaches. Train employees on recognizing potential breaches and reporting them immediately, ensuring your organization is prepared to respond within the regulatory timeframe.
6. Data minimization and purpose limitation
Financial institutions often need to collect extensive data for regulatory requirements, and balancing these requirements with GDPR’s principles of data minimization (only collecting the data necessary) Article 5 (1) (c) and purpose limitation Article 5 (1) (b) (using the data only for the stated purpose) can be difficult.
Solution
To achieve compliance, adopt a data minimization strategy by collecting only the data necessary for specific purposes. Regularly review data collection practices to ensure adherence to GDPR. Establish clear policies that define the purpose for data collection and ensure that data is used solely for those stated purposes.
7. Legacy systems and data
Many financial organizations operate with outdated IT systems that were not designed with GDPR in mind. GDPR Articles 20 and 17, which deal with data portability and the right to erasure, respectively, can be especially challenging to implement in older systems. Retrofitting these systems to ensure compliance is often a costly and complex task.
Solution
To ensure compliance, evaluate current legacy systems to identify areas requiring updates or replacements. Prioritize investments in modern IT solutions that facilitate data portability and the right to erasure. Consider cloud-based solutions that offer built-in compliance features to simplify the transition and ensure ongoing adherence to GDPR.
8. Obtaining and managing consent
Financial institutions often struggle with obtaining clear, informed, and unambiguous consent from data subjects, as required by GDPR Article 7. Managing this consent effectively, especially for activities like direct marketing or profiling, and ensuring it can be withdrawn easily is a significant hurdle.
Solution
To streamline this process, implement consent management platforms that automate the process of collecting, storing, and tracking consent across multiple channels. These platforms should ensure that consent is obtained in a clear and transparent manner, offering data subjects easy-to-understand choices regarding how their data is used.
The system should also allow data subjects to withdraw their consent at any time, with immediate effect, in line with GDPR requirements. By regularly reviewing consent mechanisms and incorporating feedback, organizations can maintain compliance while building trust with their customers.
9. Balancing compliance with other regulations
The financial industry is heavily regulated, with laws such as Anti-Money Laundering (AML) and Know Your Customer (KYC) often appearing to conflict with GDPR principles. For instance, GDPR Article 6 outlines the lawful bases for processing data, which must be reconciled with various industry-specific standards. As a result, striking the right balance between GDPR compliance and these regulations can be particularly challenging for financial institutions.
Solutions
To effectively navigate these complexities, conduct a comprehensive review of all applicable regulations to identify overlaps and conflicts. Engage legal and compliance teams to create integrated policies that satisfy both GDPR and industry-specific regulations. Develop a compliance framework that emphasizes data protection while ensuring adherence to regulatory requirements, thus creating a balanced approach to compliance.
To sum up
GDPR compliance poses significant challenges for financial institutions. However, by taking a proactive and integrated approach to compliance, organizations can effectively navigate these complexities. This involves understanding the rights of data subjects and ensuring that third-party vendors are managed carefully. Additionally, financial institutions can benefit from implementing clear data governance strategies, using centralized data management systems, and adopting modern IT solutions. By adopting these solutions along with establishing clear protocols for cross-border data transfers and a comprehensive incident response plan, organizations can enhance their overall data protection practices.
