Essential Data Security Certifications for Your Startup

According to IBM, almost 30% of all companies experienced a data breach during the last two years. According to Thales Data Threat Report, this figure among U.S. companies is even higher and reaches 45%. So, data security issues are of the utmost importance nowadays.

Once you have established a startup, your prospective customers or investors may and more likely will require that it complies with some standards and certifications relating to data security, the variety of which can make you frustrated. So what standards and certifications are there, and which ones may be necessary for your business?

Among the most well-known compliance certifications, one may inquire about SOC (with variations SOC 1, SOC 2, SOC 3), ISO 27001, GDPR and CCPA, PCI DSS, HIPAA, and HITRUST.

SOC 1, 2, and 3 come from the American Institute of Certified Public Accountants (AICPA), and the difference between them is not in the sequence or difficulty of becoming compliant. They are simply different reports. A SOC 1 report is intended for companies whose internal security controls may affect a customer's financial statements. SOC 2 report refers to an auditing standard to evaluate a startup's internal controls for privacy and information security. It's relevant for any business that uses the Cloud to store customer data. SOC 2 can be of Type I or Type II, reflecting the time issue, wherein Type I report tests a company's controls at a specific point in time, while Type II tries them over time, usually constituting 3-12 months. SOC 3 is similar to SOC 2 report, except that it is always Type II and has fewer details than SOC 2. Specifically, it does not include detailed descriptions of the auditor's control tests, procedures, or results. It also does not contain the auditor's opinion, management assertion, and system description. So, SOC 3 report is designed for the general audience and is used more like a marketing tool, while SOC 2 is provided to customers under an NDA. Thus, SOC 2 is the most commonly inquired among all SOC reports.

A survey result published by AICPA in 2021 reveals the growing market for SOC services. According to reports, increasing awareness of the importance of I.T. security at third parties has led to an almost 50% significant increase in the demand for SOC 2 engagements in contrast to the previous year.

ISO 27001 is a compliance standard developed by The International Organization of Standardization (ISO). It focuses on the Information Security Management System dealing with the secure handling of the customer's sensitive data. Information Security Management System is intended to protect more than just the data stored in the Cloud. As with SOC 2 certification, it concerns any supplementary information, whether personal information, intellectual property documentation, company secrets, or similar, regardless of the form or place of storage, be it hard or soft copy, on data devices or in the Cloud.

At the core, SOC 2 and ISO 27001 are similar, as their primary purpose is to show your customers that any data they transfer will be protected against unauthorized use. At the same time, ISO 27001 certification not only provides for the implementation of security controls of the customers' data as it is with the SOC 2 certification but also proves you have implemented a well-functioning Information Security Management System (ISMS) that helps you deal with security controls regularly.

ISO has released the results from its survey on Management System Standard Certifications 2021, reporting an increase of valid ISO 27001 of over 22%, stating 348,473 valid ISO 27001 Certificates in 2020 vs. 312,580 Certificates available in 2019.

Requirements for receiving both SOC 2 and ISO 27001 certifications partially overlap, but the latter usually costs 50-60% more and is more time-consuming than the former. Besides, since SOC 2 is commonly used by North-American companies, while ISO 27001 is an international standard for information security, SOC 2 is a great starting point. ISO 27001 can be obtained once your business expands.

GDPR refers to General Data Protection Regulation, the E.U. law regulation adopted in 2016 on data privacy and protection in the European Economic Area (EEA) and the European Union. The law also covers any personal or customer data transfer outside the E.U. So, GDPR is a must compliance requirement for startups having their business with European residents. According to the statistics, nearly 8 out of 10 U.S. companies take steps to comply with the GDPR.

CCPA refers to the California Consumer Privacy Act of 2018 and is a Californian equivalent of the European GDPR. It's another regulation that many SaaS or tech startups have to follow. CCPA applies to all companies that do business in California, collect information about its residents, and meet certain size thresholds. And since California is one of the largest economies in the world that does business with almost all the other U.S. states, CCPA applies to most companies operating in the U.S. nationwide.

PCI DSS refers to Payment Card Industry Data Security Standard, formed in 2004 to secure debit and credit card transactions data from thieves and hackers. And any startup intended to store, process, or transmit payment cardholder data must be PCI Compliant.

HIPAA is the U.S. Health Insurance Portability and Accountability Act of 1996 is required to safeguard any medical information tied to an individual. Also, it is suitable for any healthcare applications and websites that store and process confidential information of each patient.

Even though a HIPAA audit is not mandatory according to the law, any company that works with any U.S. healthcare organization must be HIPAA compliant. A HIPAA compliance audit is the best way for a startup to show it. Healthcare applications that fail to comply with HIPAA regulations will be subject to sanctions and penalties, not to mention the loss of a startup's reputation. According to the HIPAA Journal, the minimum fine for willful violations of HIPAA Rules is $50,000. Why would a startup need such problems?

And finally, HITRUST SCF is a cybersecurity framework started by the Health Information Trust Alliance in 2007, initially intended for healthcare use, but now applicable for any industry and seeking to unify the rules for many other existing regulatory and industry frameworks, including HIPAA, GDPR, SOC 2, ISO 27001, PCI-DSS, and more. Alliance offers the certification that allows any entity to comply with the abovementioned requirements using a standardized framework. HITRUST CSF certification fully incorporates other common risk management frameworks.

Despite the criticism towards HITRUST CSF uttered by Kamal Govindaswamy in his open letter on LinkedIn in 2021, where he mentioned it as "cumbersome, expensive, arbitrary, unnecessarily complex" using "outdated data," more than 90 payers and other healthcare industry companies in the U.S. require their third-party service providers to become HITRUST certified. At the same time, it is worth mentioning that becoming HITRUST certified can be very challenging for any company, requiring time, money, expertise, persistence, and maybe a bit of luck.

So, compliance is suitable for any business. A startup that meets the required industry and legal requirements has more chances for smooth development and business growth. Suppose you intend to attract more significant customers and expand. In that case, the idea is not only receiving some compliance audit or certification but continuing to keep compliance in mind as one of the main priorities.

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