Digital Transformation and How it Affects Data Compliance

Digital Transformation and How it Affects Data Compliance

Digital transformation is probably among the most-heard terms in today’s technology lexicon and for good reason. We are in an age of fast-evolving and rapidly-advancing technology that holds the potential to profoundly transform an organization’s operations.

But what constitutes digital transformation? And how does it affect data compliance? These are important questions because data compliance should be a key consideration for every organization, regardless of industry or business sector. Although it should be noted that companies in the financial sector and health care industry are subject to rigorous regulatory oversight — a fact that should translate into an elevated level of concern as it relates to digital transformation and its impact on data compliance.

What is Digital Transformation, Exactly?

We’ve all heard the term “digital transformation,” but a surprising number of people don’t really know what this actually entails. A thorough understanding is really necessary if you are going to appreciate the impact on data compliance and data management as a whole.

In a rather general sense, digital transformation can be defined as the act of using technology to create new or augment existing business processes, business models and strategies, products and services, company culture, and even the organization’s relationship and/or interactions with its clients/customers. According to PwC, 6 in 10 executives believe that digital transformation will serve as a key growth driving factor in 2022.

Digital transformation is often broken down into four areas or disciplines:

  • Employee empowerment;
  • Customer engagement;
  • Operation optimization; and
  • Product/service overhauls.

Technology can be leveraged in many ways to improve, revolutionize and overhaul these four areas of digital transformation. This broad and somewhat nebulous definition leaves many struggling to understand exactly what constitutes digital transformation; this, in turn, makes it nearly impossible to evaluate how it affects data compliance.

In a more practical sense, digital transformation most often involves new enterprise software systems, mobile applications, web apps, networks, cloud platforms, IT infrastructure, and other technology that holds the power to transform a company and its processes, strategies, customers, and clients.

Examples of How Data Compliance is Impacted by Digital Transformation

Data compliance takes many forms which means that digital transformation looks a bit different depending upon the circumstances. Here are a couple of examples of organizations that are subject to data compliance regulations and how digital transformation comes into play.

Health care organizations and other companies that collect personal health information (PHI) must adhere to HIPAA regulations. These strict regulations demand absolute compliance. Non-compliance can lead to high-impact consequences for an organization.

HIPAA regulations dictate how a health care organization can collect, handle, store and manage patient data. Any departure from HIPAA data management and privacy rules can be extremely damaging, with significant fines and penalties.

When you add digital transformation into the mix, things get more complicated. Let’s say a health care clinic deploys a new enterprise software platform with a new database. The organization must ensure that PHI data is siloed and encrypted in a manner that aligns with HIPAA regulations, lest they face major non-compliance penalties. HIPAA compliance is actually a very complex topic, so it is likely that this is just one of several potential problem areas that would need to be addressed as part of a digital transformation project.

Another example can be found in the financial sector. Banks, investment firms and money management firms are all subject to strict legal and regulatory oversight. Financial institutions are required to collect and store data such as employee communications with clients. This data must be secure and auditable, among other things.

JPMorgan learned a difficult lesson to the tune of $200 million in fines when it was discovered that employees were allowed to use consumer-grade messaging apps like WhatsApp to communicate with clients. These communications must be preserved and auditable, yet the platform in question did not allow for this, resulting in a violation of federal record-keeping laws. The Securities and Exchange Commission (SEC) issued a $125 million fine, while the Commodity Futures Trading Commission handed down a $75 million fine for ​​allegedly allowing “unapproved communications” with the messaging app.

While this particular case involved a consumer-grade messaging app, it is conceivable that a company in the financial sector might encounter similar challenges with a custom-developed mobile app or enterprise platform that was rolled out as part of a digital transformation initiative. A lack of message preservation capabilities and the inability to perform comprehensive audits would make any digital transformation project problematic for an organization in the financial space. Therefore, this is a data compliance issue that would need to be addressed as part of the digital transformation efforts.

Understanding Your Data Compliance Priorities Relative to Digital Transformation

To minimize the risk of non-compliance, take time to understand the data management regulations that affect your organization. Identify what data handling and data privacy requirements are in place. Then, once you have identified the applicable regulations, you will be well-positioned to ensure that any digital transformation projects align with your compliance efforts.

Here are a few important considerations that will help guide your examination of the digital transformation project’s impact on data compliance.

  • Does the new technology involve data collection or data generation?
  • Do the collection and storage methods you’ll be using align with the applicable laws and regulations?
  • How will data be handled once it is “at rest” in the database? Will your data be properly siloed, encrypted, and backed up?
  • Does your digital transformation project allow for data auditing and reporting?

The last point concerning data audits and reporting is often overlooked — a fact that is quite problematic. Auditing is critical for proving compliance in many regulatory body investigations. If you cannot prove compliance with a proper data audit, all of those compliance efforts may be wasted. This reality underscores the importance of understanding a digital transformation project’s full impact on data compliance.

Data compliance is usually a rather large component of a company’s risk management strategy. As such, you can expect to see benefits that extend far beyond your digital transformation efforts when you evaluate your data management practices. At iTech, we have data compliance specialists who are available to provide cost-effective solutions to clients in all industries and business sectors. We invite you to contact the iTech team to discuss how we can help your business advance with its next digital transformation initiative.

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