Financial Services Compliance Law and Regulations – Overview

Financial services compliance refers to the responsibility of the financial institutions to safeguard the consumer’s financial data and money that they hold and manage. It involves adhering to internal and external laws and regulations.

However, there has been a surge in fines due to the nonadherence of these laws and regulations. Some notable incidents in 2021 are the $1.4 million fine imposed by the U.S. Treasury over sanctions violations and an $8 million fine by the SEC.

This surge in fines has made financial institutions relook the regional and international laws and regulations. Some common laws and regulations in this sector are:

  • Gramm-Leach-Bliley Act
  • Payment Services Directive
  • New York Department of Financial Services
  • Payment Card Industry Data Security Standard

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act or GLBA came into effect in 1999. It is a set of financial data security standards requiring the Federal Trade Commission (FTC) to standardize the distribution of private financial information. The Act requires financial institutions to notify consumers of their data sharing practices and educate them of their right to opt-out of such sharing practices.

Payment Services Directive

The Payment Services Directive or PSD2 is a financial I.T. compliance regulation in the E.U. It aims to regulate payment services and their providers in the E.U. and the European Economic Area (EEA). PSD2 requires the financial institutions to have a more robust security protocol of online transactions and hand over consumer bank accounts details to third parties only if the consumer gives consent.

New York Department of Financial Services

The New York Department of Financial Services (NYDFS) Cybersecurity Regulations is a set of financial services compliance requirements designed to tackle the ever-increasing threat of cyberattacks against the industry. It requires financial institutions to implement more robust policies and controls to combat cybersecurity threats.

Payment Card Industry Data Security Standard

The Payment Card Industry Data Security Standard or PCI DSS is a set of data security guidelines focused on safeguarding the credit and debit account data. These guidelines are intended to regulate the way merchants, service providers, financial institutions, and software developers process, store and transmit cardholder data.

It has six goals and twelve security requirements for ensuring compliance. The goals include:

  1. Building and Maintaining a Secure Network
  2. Protecting Cardholder Data
  3. Maintaining a Vulnerability Management Program
  4. Implementing Strong Access Control Measures
  5. Regularly Monitoring and Test Networks
  6. Maintaining an Information Security Policy

The twelve requirements include:

  1. Installing and maintaining a firewall configuration to safeguard cardholder data
  2. Not using vendor-supplied defaults for system passwords and other security parameters
  3. Protecting stored cardholder data
  4. Encrypting communication of cardholder data across open public networks
  5. Using and frequently updating anti-virus software or programs
  6. Developing and maintaining secure systems and applications
  7. Restricting access to cardholder data by business need-to-know
  8. Assigning a unique I.D. to each person with computer access
  9. Restricting physical access to cardholder data
  10. Tracking and monitoring all access to system resources and cardholder data
  11. Regularly testing security systems and processes
  12. Maintaining a policy that addresses information security for employees and contractors

Adhering to financial services compliance laws and regulations has never been easy in the past and will not be in the future either. Therefore, keeping track of the changes in these laws and regulations and adhering to them with compliance management software is the only way to prevent your business from those hefty fines.

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