The financial crisis of 2008 was a wake-up call for the world. Companies took shortcuts to gain more profits and compromised their company’s financial ethics and transparency. This led to a collapse in the global market and the loss of investor trust.
While SOX requirements are crucial in ensuring that financial statements are accurate and companies are transparent and accountable in their financial reporting, it also takes a hard line on ensuring that the systems that protect this sensitive information are secure. Since over 22 billion records were exposed due to data breaches in 2021 and 70% of security breaches were financially motivated, companies are strongly motivated to secure their infrastructure and meet SOX compliance standards.
In this blog, we will dive into the foundations of SOX financial regulations, its history, and the implications of non-compliance. We’ll also discuss the security threats companies expose themselves to when they fail to comply with SOX. We will explore the challenges companies face in meeting SOX compliance, particularly in IT security, and how they can overcome them to build a solid foundation for their IT and security practices.
SOX Compliance Requirements: Understanding its History and Importance
Understanding SOX and its history is crucial because it provides valuable insights into the reasons for its creation, its goals and objectives, and the implications for companies that must comply with it, helping to avoid the potential legal and financial penalties associated with non-compliance. SOX knowledge, including its history, can help companies identify areas where they may be vulnerable to fraud or mismanagement and implement effective internal controls to prevent such incidents.
What is SOX?
SOX stands for the Sarbanes-Oxley Act of 2002, a US federal law designed to protect shareholders and the general public from fraudulent accounting practices by corporations. SOX ensures that financial statements are accurate and reliable and sets strict guidelines for how companies should manage their financial data. One of the key components of SOX is its emphasis on internal controls, particularly in access, IT security, data backup, and change management.
SOX compliance is essential for several reasons:
- It helps to protect investors and the public by ensuring that companies are transparent and accountable in their financial reporting.
- It promotes good corporate governance and ethical behavior by requiring companies to establish and maintain effective internal controls.
- It can help companies avoid costly errors and mistakes that can damage their reputation and bottom line.
If a company fails a SOX audit, it could face serious consequences, including fines, legal penalties, and damage to its reputation. In extreme cases, a company’s executives could even face criminal charges. However, the consequences of failing a SOX audit go beyond just legal and financial penalties. Non-compliance with SOX can also erode investor confidence, harm the company’s relationships with its customers and suppliers, and create operational inefficiencies.
Why SOX Compliance Matters
The financial crisis of 2008 was also sparked by companies attempting to move fast and take shortcuts. In this period, many large organizations such as Bear Sterns, Lehman Brothers, and Merrill Lynch were lauded as leaders in their market but ultimately collapsed and were subject to bankruptcy or acquisition.
After evaluating the root cause for the mass financial failure, it was discovered that there were numerous causes, including predatory lending, massive defaults, deregulation, and lack of regulation. All of which created immense risks for financial institutions and their investors. Even though investors carried much of the risk, the financial companies did not adequately convey this data, causing investors to believe they held a safer investment than they genuinely did.
Protecting Investors and Promoting Good Data Governance
This perfect storm of conditions created the Global Financial Crisis, a massive collapse in the global market. To prevent a disaster of this magnitude from reoccurring, regulations such as SOX and the Gramm-Leach-Bliley Act (GLBA) were enacted to set strict guidelines on how publicly traded companies handle their data and financial records. They outlined harsh penalties for those that fail to comply, with heavy fines and even the possibility of imprisonment for company executives.
SOX Compliance Challenges
Meeting SOX compliance for IT security can be challenging for companies, especially those that operate in complex and rapidly changing technology environments.
Securely sharing data for collaboration is also challenging, requiring advanced technologies to protect data wherever it resides, even in use.
The Data Security Perspective
The risk for organizations comes not only from externally sharing data but also from using it internally. Data is spread across numerous organizational applications with different management and oversight practices. Whether they reside in the Cloud, on-premises, or on end-user systems, there are various places where sensitive data may live, creating a challenge in applying appropriate and effective measures to secure it.
While it might seem easy to mandate the centralization of all data with strict access controls and processes to use it, it adds time and bureaucracy that hinders workers from getting their jobs done. Security that slows down and hinders workers inhibits growth and innovation as worker efforts are dedicated to the security process rather than processes that help the organization improve. Finding ways to strike the balance of allowing users to work while keeping the data secure is challenging on its own and made more difficult when information is widely distributed.
Safely Sharing Data in a Remote Work Environment
Organizations need to move quickly to be competitive in the current market, producing research and innovation for new products and services. Doing this requires utilizing internal resources efficiently and collaborating with partners, peers, and researchers. Effective collaboration necessitates sharing information, which creates a level of risk for your organization.
Individuals, including employees outside of the organizational network and resources, create a risk of data being leaked. Your company has limited control over the security level of the endpoints they use to access information or the safety of the networks they utilize. This creates an opening for theft by bad actors or even accidental disclosure. To collaborate safely, businesses need a way to limit who can access their data and ways to protect it so that even if it is stolen, it is not useful to cybercriminals.
Building a Solid Foundation: Balancing Data Security and Innovation
With all the challenges involved in keeping your organization growing, it is no surprise that many companies have traded off development speed for security. The problem is that companies are making the same mistakes with IT and security that financial companies did in years past with their own data and reporting. This creates risk for customers in the same way that risk was created for investors without informed consent.
Though it creates an opportunity for businesses that wish to get ahead of current threats and potential regulations they could face.
Taking time to create a solid foundation for their IT and security practices will help companies prepare for whatever changes come, keeping their data safe. The foundation they build will allow them the flexibility to adapt to new regulatory mandates without rushing and quickly implementing solutions and processes on someone else’s timeline.
Data Protection: A Data-First Approach to Security
One of the first steps in implementing good security practices requires starting with the data’s target in mind. It is what cybercriminals look for when they attack and what customers care the most about if it is compromised. Controls should be designed around protecting the data by keeping it confidential while still ensuring that it is available for those needing it.
Doing this requires more than a single type of protection. Protecting data throughout its storage, transmission, and use lifecycle takes a holistic security solution. This involves a combination of encryption, access control, and threat detection to not only guarantee the confidentiality of the data but to detect when attacks are starting, so they can be stopped before they get a foothold.
Secure Collaboration: Bridging the Gap with Advanced Solutions
With organizations embracing cloud computing and remote workforces, the need for securely sharing data for collaboration has never been more critical. Businesses can now hire the best and brightest worldwide without worrying about relocation challenges. Bringing together top-tier talent is a fundamental recipe for innovation.
Using cloud technology, applications, and data can be shared across great distances as easily as if they were in the same building. Securing this new collaboration requires more than traditional security methods, which are not equipped to keep up with these new technologies. Many legacy solutions do not scale with cloud computing or work well with data staged throughout multiple environments, especially outside the office’s traditional boundaries.
Previous encryption solutions effectively protected data when it was stored in one location or even between endpoints. This older technology is insufficient for guaranteeing privacy when the data needs to be analyzed. It requires pulling the data out of its protected state to a form that can be accessed. This creates a hole that attackers can exploit.
Newer solutions bridge this gap and can protect the data wherever it resides and when it is in use. It forms a protective fabric throughout your entire IT infrastructure keeping the data confidential at all times. Combining this with advanced detection capabilities driven by machine learning (ML), threats can be rapidly detected, helping prevent attacks before they take hold.
Sotero: Meeting SOX Compliance and Beyond
To meet SOX compliance, having a secure IT foundation that includes the right technology and processes is crucial. This doesn’t necessarily require a complete overhaul of your existing infrastructure but rather an evolution of your solutions towards a data-centric security approach that prioritizes data security.
Sotero offers a data protection platform that is designed to provide multiple layers of controls beyond basic encryption. It integrates access controls and behavioral monitoring, providing a holistic approach to data protection. With Sotero, you can streamline data management, track resource usage, and identify any misuse or attacks early on through a centralized interface, making it easier to meet your SOX compliance requirements.
Contact a data security expert to learn more about how Sotero can help your organization protect its most important asset, its data.