As we move into the year 2023, users’ data protection is not only a topic of discussion but has become a whole industry due to the increase in internet-based crimes. Several business operations depend on the internet, i.e., data is constantly moving across the world; software and cloud services have simplified company operations. Despite this ease, data is mishandled, which has led to attacks on various organizations, including identity theft, malware installation, online blackmail, and extortion.

Have you asked your third-party service providers or network providers how their data is protected during and after transmission? Can you tell if these vendors protect your data adequately? More importantly, if you’re the vendor in question, how do you prove to customers that their data is safe with you? The answer lies in SOC 2.

What Is SOC 2?

SOC 2, standing for Systems and Organizations Controls 2, is an audit framework that evaluates how service providers handle client data over a specific period. It’s often seen as a non-financial reporting framework, distinct from more rigid security frameworks like PCI DSS. SOC 2’s primary focus is on assessing a service provider’s adherence to its declared practices and standards, ensuring the security and integrity of an organization’s data.

This framework is pivotal for building customer confidence, as it demonstrates a service provider’s commitment to preventing data breaches and unauthorized access. Consequently, businesses often request SOC 2 compliance reports from B2B and SaaS companies as a prerequisite for contractual engagement.

What Is the Core Criteria of SOC 2 Compliance?

SOC 2, a flexible and essential data security framework, is crucial for B2B and SaaS companies focused on data security. Governed by the American Institute of Certified Public Accountants (AICPA), it centers around five critical criteria for managing client data: Security, Privacy, Confidentiality, Processing Integrity, and Availability.

Five Trust Services Criteria Of SOC 2

The Trust Services Criteria (TSC), set by AICPA, serve as a framework for evaluating and reporting on controls over information and systems:

• At an entity, subsidiary, operating unit, or functional level.
• Relating to the entity’s operational, reporting, or compliance objectives.
• For specific types of information used by the entity.

The Assurance Services Executive Committee (ASEC) oversees the technical accuracy and development of the TSC, including engagements and related services leveraging the TSC. The TSC are divided into the following categories:

1. Security: The cornerstone of SOC 2 compliance, Security, involves protecting systems and information from unauthorized access, disclosure, misuse, alteration, or destruction, therefore safeguarding privacy, confidentiality, availability, and integrity. Security measures like intrusion detection, data loss prevention software, and authentication programs are vital for preventing breaches.
2. Availability: Focused on the accessibility and availability of the system and information as stipulated in service level agreements (SLAs). This principle is concerned with security-related issues that affect the system’s operation, rather than functionality or usability.
3. Processing Integrity: This principle queries whether the system delivers accurate, valid, and timely data, ensuring its purpose is fulfilled effectively.
4. Confidentiality: Addresses the safeguarding of data stored with vendors or service providers, ensuring it is disclosed only to authorized parties. Encryption plays a key role in maintaining confidentiality.
5. Privacy: Concerning Personal Identifiable Information (PII) managed on behalf of clients, this principle dictates the handling of such data to prevent unauthorized access. The Privacy Management Framework (PMF), updated in 2020, guides service providers in managing privacy risks and aligns with modern privacy laws and technological advancements.

In summary, SOC 2’s flexible framework and its comprehensive criteria ensure that businesses can effectively manage client data with a high degree of security and trust.

Brief Difference Between SOC 1 and SOC 2

SOC 1 is designed specifically for financial institutions or services linked to financial reporting, utilizing controls distinct from those in SOC 2. Conversely, SOC 2 represents an evolution of these controls, focusing more on cloud computing and contemporary technology companies. The primary focus of SOC 2 is on modern technologies and services not directly related to financial products or finance itself.

Essential Security Measures for Achieving SOC 2 Compliance in Cloud Services

Achieving SOC 2 compliance is essential for any service provider handling customer data in the cloud. It’s a critical requirement for most SaaS and B2B companies. Before 2014, SOC 1 was the predominant standard, but with advancements in cloud technology and the increasing threat to user information, SOC 2 has emerged as the preferred standard to mitigate the risk and exposure of user data. The following are four crucial security measures necessary for SOC 2 compliance:

1. Monitoring The Known & The Unknown

SOC 2 compliance demands rigorous oversight of an organization’s operations, encompassing both known and unknown variables. This includes monitoring unusual system activities, both authorized and unauthorized system configurations, and user access levels. Monitoring authorized access represents the known variable, while unauthorized access is the “unknown variable.” To prevent malicious activities from accessing data, particularly in the rapidly evolving cloud ecosystem, it’s crucial to monitor or set alerts for activities that deviate from known variables or authorized access.

2. Anomaly Alerts

Service providers must be equipped to respond promptly to any unauthorized access to customer data. SOC 2 mandates the implementation of effective alerting procedures for activities that include:

• Unauthorized modification or exposure of data, controls, or configurations.
• Unauthorized file transfer activities.
• Unauthorized access to privileged filesystems, accounts, or login details/controls.

3. Detailed Audit Trails

Understanding the root cause of an attack is essential to provide a quick and effective response. Detailed audit trails are invaluable for gaining insights into security operations. These trails offer a comprehensive context of “who, what, when, where, and how” regarding a security incident, aiding in making swift and informed decisions.

4. Actionable Forensics

• Identifying the origin of the attack.
• Tracing its path through the system.
• Understanding the part of the system affected.
• Determining the nature and scope of the impact.
• Predicting potential future targets or moves of the attack.

Why Is SOC 2 Compliance Important?

SOC 2 compliance is essential for data security and privacy, although it’s not a mandatory requirement like PCI DSS or KYC. Many companies now consider SOC 2 compliance a prerequisite for trusting a cloud-based service provider. Here are some benefits of being SOC 2 compliant:

1. Competitive Advantage: Possessing a SOC 2 report demonstrates to clients that your company takes data security seriously, giving you a competitive edge and easing client acquisition.
2. Avoidance of Data Breach Fines: The cost of SOC 2 compliance, though potentially substantial, is far less than the financial repercussions of a data breach, which can run into millions.
3. Regulatory Compliance: SOC 2 compliance can facilitate adherence to other data security standards, such as HIPAA and ISO 27001.
4. Organizational Advantage: A SOC 2 report offers insights into your organization’s risk management, internal control, governance, and regulatory oversight, not just client benefits.
5. Peace of Mind: Ensuring your networks and systems are secure through SOC 2 reports offers peace of mind to both you and your clients.

Who Needs SOC 2?

While not a legal mandate, the following entities can greatly benefit from SOC 2 compliance:

• SaaS Providers
• Software Vendors
• Cloud Service Providers
• Any organization that stores client data in the cloud

SOC 2 Auditing Process

The SOC 2 audit, conducted by an independent third-party auditor, typically takes six to twelve months, with expedited “Type I reports” possible in three months. The audit process involves:

• Preparation Phase: Define audit scope and objectives, document policies and procedures, and perform a readiness assessment.
• Execution Phase: Review SOC 2 scope, develop a project plan, test security controls for operational effectiveness, document results, and produce a final report.

Two Types of SOC 2 Reports

SOC 2 evaluations are conducted annually as these reports are valid for a period of twelve months. There are two types of SOC 2 reports:

1. Type I: This report assesses the design of internal controls at a specific point in time. Auditors evaluate and give opinions on the suitability of these controls in protecting clients’ data and adhering to relevant trust principles.
2. Type II: Building on the Type I report, the Type II report examines the operational effectiveness of the established controls over a minimum period of six months. Auditors observe and assess how the controls are implemented and followed by the organization on selected days within the testing period, to measure their effectiveness.

The key distinction between Type I and Type II reports lies in the audit duration. Type II involves a more extended auditing period and provides comprehensive insights into the implementation and effectiveness of the controls. This detailed approach often makes Type II reports the preferred choice for many businesses. On the other hand, Type I reports, being quicker to complete, are chosen by companies needing a SOC 2 report within a shorter timeframe, like three months.

Choosing the Right SOC 2 Compliance Report

Identity.com

SOC 2 is a flexible reporting framework that properly handles clients’ data or information. Every service provider in the Identity.com ecosystem is SOC 2 compliant to ensure the safety and security of our users’ data. Identity.com is an open-source ecosystem providing access to on-chain and secure identity verification. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. For more info, please refer to our docs.