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 stands for Systems and Organizations Controls 2. In SOC 2, compliance is monitored via audit procedures that ensure service providers properly handle their clients’ data within a specified timeframe. Most people refer to it as a non-financial reporting framework rather than a rigid security framework like PCI DSS. To ensure the security of your organization’s data, SOC 2 measures how well a service provider adheres to its promises, guidelines, and best practices.

The confidence and trust of customers would increase if they knew their data was secure. The service providers handling your organization’s and/or clients’ information must take the necessary precautions to prevent data leakage and unregulated access to the data in their care. Therefore, some businesses request SOC 2 compliance reports from B2B and SaaS companies before entering a contract.

SOC 2 is a non-financial flexible data management security framework that is easy to manage. At the very least, it is the minimum requirement for B2B and SaaS companies that are security-conscious. Below are five criteria for managing clients’ data as prescribed by the governing body AICPA (i.e., the American Institute of Certified Public Accountants):

1. Security
2. Privacy
3. Confidentiality
4. Processing Integrity
5. Availability

The criteria are based on “trust service principles,” with “security” as the baseline. As a result, every SOC 2 report must include security, and any of the remaining four can be added based on industry norms, preferences, expectations, client demands, etc. Because SOC 2 is flexible, each report is customized according to the requirements and stage of each company, making each report unique. In addition, companies design their controls, and the reports generated provide clients and potential clients with critical information about how a service provider manages their data.

Five Trust Services Criteria Of SOC 2

According to AICPA, the Trust Services Criteria (TSC) are used in attesting or engagement consulting to evaluate and report about information and system controls:

1. Across an entire entity.
2. At a subsidiary or operating unit level.
3. Within a function applicable to the entity’s operational, reporting, or compliance goals.
4. For a specific type of information used by the entity.

The Assurance Services Executive Committee (ASEC) is responsible for the technical accuracy of the Trust Services Criteria (TSC), which includes engagement and developing related services that leverage TSC. The TSC are classified into the following categories:

1. Security. This is the most critical part of TSC for SOC 2 compliance; it describes the protection of the system and information against unauthorized access, unauthorized disclosure, misuse of software, damage to information, and unauthorized alteration that could compromise the privacy, confidentiality, availability, and integrity of the system or information. In addition, many security measures can prevent data breaches and unauthorized access to data, including intrusion detection systems, data loss prevention software, and authentication programs.
2. Availability. The service level agreement (SLA) in a business contract lays out what is expected from the relationship. Availability refers to an expected obligation in TSC to make the system and needed information accessible and available for the operation of the other party (clients or companies). Therefore, rather than addressing functionality and usability, this principle focuses on security-related issues affecting accessibility and availability.
3. Processing Integrity. Does the system achieve its purpose? Does it deliver the correct data at the right time? Are the pieces of data accurate and valid? These are the questions the “processing integrity” principle addresses about the system.
4. Confidentiality. Different organizations may store their data with other vendors or service providers. Still, confidential data is delivered to the right person or organization without being disclosed to restricted individuals or organizations. In situations like this, encryption can help ensure confidentiality and protect against unauthorized access.
5. Privacy. Personal Identifiable Information (PII) refers to information about each individual that is collected, used, and stored by a service provider on behalf of their client. The TSC privacy principle addresses how these pieces of information should be managed, so they can avoid falling into the wrong hands. The Privacy Management Framework (PMF) can be used to establish and operate a comprehensive information privacy program that addresses what service providers are expected to do concerning privacy risks while facilitating current and future business opportunities.The PMF was created to update the former 2009 Generally Accepted Privacy Principles (GAPP). Several changes in privacy laws and standards, including the publication of the General Data Protection Regulation (GDPR) and the rapid advancement of technology, warranted its creation. In 2020, the AICPA Privacy Task Force updated the PMF.

Brief Difference Between SOC 1 and SOC 2

SOC 1 was created for financial institutions or reporting connected to financial information with a different set of controls from SOC 2. In contrast, SOC 2 was a re-engineering of the previous controls focused on cloud computing and modern technology companies. In SOC 2, the emphasis is on modern technologies and services that do not directly connect to financial products or finances.

What Is SOC 2 Compliance?

Being SOC 2 compliant is a must for any service provider that processes or stores customer data in the cloud. Almost all SaaS and B2B companies are subject to this compliance requirement. Before 2014, SOC 1 was the standard, but seeing the technological development in the cloud ecosystem and the continuous attempt and attack on users’ information, SOC 2 has become the official standard to minimize the risk and exposure of users’ data. Below are four security measures necessary for SOC 2 compliance:

1. Monitoring The Known & The Unknown

SOC 2 compliance requires a strong oversight of the organization’s operations and the proper monitoring of known and unknown variables. This includes tracking unusual system activities, authorized and unauthorized system configuration, and user access levels.

Monitoring authorized access is a known variable, while monitoring unauthorized access is an “unknown variable.” Preventing malicious activities from accessing data requires more measures. For example, how can unknown variables or malicious activities be monitored with the cloud ecosystem being a fast-moving environment? You should monitor or set alerts for any activity opposite to known variables or authorized access.

2. Anomaly Alerts

Service providers must be able to react immediately if unauthorized access to customer data occurs. This will require adequate alerting procedures. Specifically, SOC 2 requires service providers to set up alerts for any activities that bring about:

1. 1. Unauthorized modification or exposure  of  data, controls, or configurations.
   2. Unauthorized file transfer activities.
   3. Unauthorized access to privileged filesystem, account, or login details/controls.

A service provider (Saas, B2B, etc.) must determine the factors or indicators responsible for triggering the alarm system. As a result, threats will be readily identified within a cloud environment so that immediate action can be taken.

3. Detailed Audit Trails

It is essential to understand the root cause of an attack to provide a solution that rebuffs the attack and a fast response time. Detailed audit trails are the best way to gain insight into security operations. Audit trails provide the cloud context of “who, what, when, where, and how” of a security incident, which helps with quick and informed decisions.

4. Actionable Forensics

 In SOC 2 compliance, monitoring suspicious activities and receiving real-time alerts aren’t the only factors that reassure customers, but taking corrective measures before customers’ data is exposed, damaged, or compromised. With the following forensics, a service provider can effectively detect system threats to help mitigate their impact and prevent future occurrences. Below are the five helpful forensics needed to neutralize an attack thoroughly:

1. 1. Where did the attack originate from?
   2. Where it traveled to?
   3. What part of the system is affected?
   4. What is the nature of the impact?
   5. Where might be affected next, i.e., what can be the next move of the attack?

Why Is SOC 2 Compliance Important?

SOC 2 compliance is not a fixed requirement like PCI DSS or KYC, but it plays an important role in ensuring data security and privacy. As a result, it has become a requirement that many companies request before they trust a cloud-based service provider. The following are some of the benefits of being SOC 2 compliant:

• Competitive Advantage: Having a SOC 2 report proves to your clients that you’re serious about business and their data is safe with your company. By doing this, you automatically win more clients without struggling to close the sale. Compared to your competitors without SOC 2 reports, you have more advantages.
• Avoidance Of Data Breach Fines: A SOC 2 compliance program can cost $100,000 or more, as a data breach fine can be millions of dollars. Compare the two and conclude for yourself. The cost of SOC 2 audits is nothing compared to the price of a data breach.
• Regulatory Compliance. SOC 2 compliance makes achieving other data security compliances easier or faster, e.g., HIPAA, ISO 27001, etc.
• Organizational Advantage. SOC 2 report isn’t just about your clients. Instead, it provides valuable information about your organization’s risk and counter-security measures, internal control, vendor management, governance, regulatory oversight, etc.
• Peace of Mind. SOC 2 reports ensure that your networks and systems are secure.

Who Needs SOC 2?

While SOC 2 is not a fixed requirement, government policy, or regulation, below are some organizations that would benefit by being SOC 2 compliant:

1. SaaS Providers
2. Software Vendors
3. Cloud Service Providers
4. Organizations that store some or all of clients’ information in the cloud.

SOC 2 Auditing Process

The SOC 2 audit is to be conducted by an independent third-party auditor, so an outside auditor issues the certification. Audits of SOC 2 take six to twelve months, except for urgent “type I reports,” which can be completed in three months. The auditing process includes two stages: preparation and execution. The following steps will help you prepare for the audit:

1. Define your audit’s scope and objectives (be customer-focused, your auditor can help out here).
2. Document clear policies and procedures (you will be assessed based on this, so make them transparent).
3. Perform a readiness test (this is an opportunity to evaluate and identify your weaknesses before the primary audit takes place).

Below are the steps included in the execution phase:

1. Review and audit your SOC 2 scope.
2. Develop a project plan (this will consist of an expected project timeline).
3. Test security controls for operational effectiveness.
4. Document the results.
5. A written report on the controls and final opinions will be provided.

Staff needed for the SOC 2 auditing process:

SOC 2 auditing process isn’t limited to the IT or security departments alone. Below are some departments or staff that should be involved in the auditing process:

1. IT/Security
2. Executive sponsor
3. External consultant
4. Project manager
5. HR
6. Legal

Two Types of SOC 2 Reports:

The SOC 2 evaluation must be repeated yearly since these reports are valid for twelve months. The following are the two types of SOC 2 reports issued after auditioning:

• Type I: In the Type I report, the auditors report on the internal controls set up to secure and protect clients’ data, including giving opinions on the suitability of those controls. This report describes the potential of these controls in meeting relevant trust principles.
• Type II: In addition to the “Type I report,” this also focuses on the operational effectiveness of the controls. A “Type I” report certifies that internal controls are in place, while a “Type II” report attests that they have been implemented and monitors their effectiveness for at least six months. On sample days during the testing period, the auditor observes how the controls were implemented and how the organization followed them to measure the effectiveness of the controls.

The main difference between Type I and Type II reports includes the more extended period for auditing in Type II, which provides detailed reporting on implementing those controls. For this reason, many businesses opt-in for a Type II report as many clients prefer it. As a result, some companies choose Type I because they have a short time frame for getting a SOC 2 report, and the only feasible result is a Type I within three months.

Which SOC 2 Compliance Report Should You Choose?

A Type II report assures clients of proactive measures towards all-around data security, which is the detailed report most preferred by potential clients. As a growing company, it is best to begin with a Type I report, as it provides a good starting point for developing a solid internal control program over time based on the description of your system. Note that you can directly go for a Type II report without Type I as a prerequisite.

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.