Compliance Framework: Quick Overview

We’ve all been there—trying to manage multiple business challenges at once without a proper roadmap. Keeping up with industry and state regulations is a necessary hurdle to success. Thankfully, compliance frameworks, like a pre-packed solution; help you put pieces of the regulatory challenge together.

In this article, we understand what a compliance framework is, the key elements, and how to implement it.

What is a compliance framework?

Compliance framework refers to a set of structured guidelines, controls, and practices that ensure organizations manage their systems and processes to meet regulations, industry standards, and business objectives.

Why are compliance frameworks important for an organization?

Compliance management frameworks provide a systematic approach to navigating regulatory requirements and integrating them with organisational goals. The frameworks provide a starting ground for identifying existing risks and foster a culture of continuous improvement.

Compliance frameworks are important to:

Identify gaps in the security posture to reduce incidents, ensure business continuity,
and stay compliant with applicable compliance frameworks.
Keep track of new technologies added to the system, changes to existing systems, and issues and document them.
Strategically deploy human and capital resources to improve efficiency.
Boost operational efficiency by using a holistic approach that combines process, people, and technology.

Here are the four key elements of a compliance framework:

Compliance Policy

A compliance policy outlines key objectives, goals, and approaches you want to implement to meet the obligations of a framework. Compliance policies help establish adherence benchmarks, serve as a guiding tool for implementation and set a culture of security and accountability.

Typically, a compliance policy should address the following:

Roles and responsibilities: Employees are assigned activities along with an expected delivery date.
Governing requirements: The clause or subclause of the regulation applicable for each activity.
Standard Operating Procedures (SOPs) for implementation: A set of processes to identify new compliance requirements, implement relevant technology to meet those obligations, and monitor the incorporated controls.
Monitoring and reporting mechanisms: Methods to continuously audit and evaluate the effectiveness of compliance activities.
Management reviews: A set frequency for management oversights and review of progress
Communication of updates: Process and frequency for policy revisions and communication channels for notifying the updates

Compliance Plan

While a compliance policy sets the tone of framework implementation, a compliance plan is a more comprehensive and structured blueprint. The plan addresses the risks associated with each compliance area, resources and budgeting, training plans, documentation strategies and more.

A compliance plan talks about:

The type, complexity, and objectives of the controls.
How achievable are your control metrics and how well do they align with the policy and processes?
If there is a clear alignment between the selected controls and framework requirements.

A good practice to ensure timely delivery and visualization of the plan ahead is to use a compliance calendar. This helps all concerned parties understand their tasks, framework requirements, internal dependencies, and external dependencies better.

Compliance automation

Compliance automation is the use of technological solutions to streamline compliance processes.
Bringing spreadsheets, calendars, and task-based accountability together is not easy but works for some organizations. Most, however, find it challenging to execute everything flawlessly. At this point, many consider compliance automation solutions to manage processes and reduce manual efforts.

Independent audit

Independent Audits review your controls against the requirements of the framework policy. It helps the management understand where the minor gaps or major non-compliance lies so that they can be fixed to avoid legal issues and ensure business continuity.

Generally, audits are performed by independent bodies to leave no room for a biased review. Once complete, the auditor will provide you with a detailed report on gaps, suggest corrective actions, and compile other useful observations.

Depending on the industry, number of controls, and nature of the organization, preparing for an audit may take months. For example, the audit process for SOC 2 differs in many aspects from the ISO 27001 auditing process.

List of compliance frameworks

Compliance framework applicability is industry-specific and one business may be subject to multiple regulations. While several compliance frameworks exist, here is a compliance framework list that you must be aware of:

Service Organizations Control or SOC 2

Systems and Organization Controls or SOC 2 is a report that evaluates the design and operating effectiveness of an organization’s controls based on five trust criteria. The criteria are established and maintained by the American Institute of Public Accountants (AICPA) and include security, availability, processing integrity, and confidentiality. While security is a compulsory criterion, the others are applicable based on the industry or type of data processed.

The 5 Trust criteria for SOC 2:

Security: It ensures that the information assets are protected from unauthorized access.

Availability: Availability criteria ensure that the systems are up and running to make the required information accessible to the right users.

Processing integrity: This criterion validates the accuracy and completeness of information

Confidentiality: Confidentiality criteria ensure that sensitive information is protected against disclosure and from unauthorized users.

Privacy: Privacy criteria cater to personal information and ensure that it is protected and properly disposed of.

SOC 2 applicability: It applies to cloud-hosted companies that process, manage, and transmit customer data. SOC 2 is not a compulsory but voluntary compliance program that helps service organizations demonstrate trust.

Types of SOC 2 reports: There are two types of SOC 2 reports: Type 1 and type 2. SOC 2 Type 1 evaluates the design of controls at a point in time while SOC 2 is a more comprehensive and insightful report that evaluates the effectiveness of internal controls for 3-6 months. If you are embarking on your SOC 2 journey, you must start with SOC 2 Type 1 and then move to Type 2.

Health Insurance Portability and Accountability Act (HIPAA)

The Health Insurance Portability and Accountability Act of 1996 standardizes the flow of information in healthcare and protects sensitive patient healthcare information (PHI). HIPAA is a federal law that applies to any individual or service in the US that meets the definition of A Covered Entity (CE) or Business Associate (BA).

Covered entities and business associates: Covered entities include healthcare providers, health plans and healthcare clearinghouses that directly deal with PHI or ePHI (electronic PHI). Business associates are third-party service organizations, contractors etc. that handle ePHI on behalf of covered entities.

HIPAA rules: HIPAA consists of various rules that govern the use and disclosure of PHI and grants certain rights to individuals regarding their personal information. Major HIPAA rules include privacy, rule, security rule, enforcement rule, omnibus rule and breach notification rules.

Enforcement: HIPAA is enforced by the Office for Civil Rights (OCR) under the Department of Health and Human Services (HHS) in the U.S.

Certification: There is no formal certification for this regulation, but if you fail to comply, civil and criminal penalties can be levied against you.

General Data Protection Regulation (GDPR)

The General Data Protection Regulation is probably the most difficult and comprehensive. It applies to any business that processes the personal data of individuals in the European Union (EU) or European Economic Area (EEA).

10 key requirements: GDPR comprises 10 key requirements including

Lawfulness, fairness and transparency: There must be a legal basis for data collection and usage.
Purpose limitation: The purpose of data collection must be legitimate and there must be clarity of intent.
Data minimization: The data collected must be adequate for the intended purpose and any unnecessary information must not be collected.
Accuracy: The collected data must be error-free and serve as a single source of truth.
Storage limitation: Organizations must have data retention policies in place and the data must be deleted or anonymized after the specified time.
Integrity and confidentiality: The collected must be protected against unauthorized access or any compromise by way of modification, tampering etc.
Accountability: Organizations must take ownership of protecting collected data and maintain records of any processing activities
Rights of data subject: Individuals have certain rights such as the right to access data, the right to object processing of data etc.
Data breach notification: Data breaches must be notified to the relevant authority not later than 72 hours of the incident.
International data transfers: International data transfers are subject to ‘adequacy’ decisions.

Payment Card Industry Data Security Standard (PCI DSS)

The Payment Card Industry Data Security Standard applies to merchants that accept, store or process customer payments through credit or debit cards. Its goal is to prevent card-related fraud using a set of recommended baseline security measures.

PCI SSC: The Payment Card Industry Security Standards Council (PCI SSC) is the regulating body responsible for developing and maintaining PCI standards. It is established by major credit card companies including American Express, Visa, Mastercard, Discover and JCB.

PCI DSS levels: There are 4 PCI DSS compliance levels based on transaction volume.

Level 1: Merchants processing over 6 million transactions annually.
Level 2: Merchants processing 1 million to 6 million transactions per year.
Level 3: Merchants processing 20000 to 1 million transactions on an annual basis
Level 4: Merchants processing fewer than 20000 transactions per year.

PCI DSS requirements: There are 12 PCI requirements that every vendor, irrespective of the number of transactions they process, must implement. If you fail to comply, lawsuits and heavy penalties may apply against your business. These 12 requirements are:

Installing and maintaining a firewall
Not using default or vendor-supplied security parameters
Protecting cardholder data
Encrypting cardholder data
Installing and updating antivirus regularly
Developing and maintaining secure applications
Blocking access to cardholder data
Assigning unique identification
Blocking physical access to cardholder data
Tracking and monitoring cardholder data and network resources
Testing all security systems and processes
Maintaining information security policy

International Organization for Standardization (ISO) 27001

ISO 27001 provides guidelines and best practices around which organizations can effectively manage, improve, and create their Information Management Security System (ISMS). It is published by the International Organization for Standardization and helps demonstrate sufficient measures and controls to identify, detect, and mitigate risks to information systems.

The latest version of ISO 27001 is ISO 27001:2022 and has 93 controls with 11 new control additions and certain mergers of controls. The previous version which was the 2013 version had 114 controls divided into 14 categories.

Broadly, ISO 27001 requires organizations to

Define the scope of ISMS
Identify existing gaps in control implementation
Establish management commitment to building a strong ISMS
Conducting risk assessments and implementing risk treatment plan
Monitoring the performance of ISMS and ensuring ongoing improvement

National Institute of Standards and Technology (NIST)

The NIST framework was developed by the U.S. Department of Commerce that promote industrial innovation and competitiveness. NIST has developed a Cybersecurity Framework (NIST CSF) to help businesses manage their cybersecurity risks.

Key Components of NIST CSF:

Core functions: According to NIST CSF, 5 core functions constitute every cybersecurity program:

Identify: Understanding the assets and data in the environment
Protect: Implementing controls to safeguard critical assets
Detect: Continuously detecting any cybersecurity events
Respond: Develop a response mechanism for security incidents including containment, communication etc.
Recover: Restoring services to normal business operations.

Implementation tiers: The implementation tiers range from tier 1 to tier 4 depending on the security maturity of the organization.

Profile: Framework profile assists organizations in creating current and desired profiles and working towards risk-based improvement.

California Consumer Protection Act (CCPA)

CCPA is a privacy law that protects the personal data of California customers and grants them certain rights to know what kind of information is being collected and even opt out. Businesses under the purview of CCPA must implement appropriate security measures to protect personal information from unauthorized access or tampering.

Applicability CCPA applies if businesses match any of the following criteria:

Revenue threshold: Annual gross revenue is $25 million or more
Data collection: If the business buys, sells or receives data from a minimum of 50000 California residents, households or devices annually.
Business type: If 50% of business revenue comes from selling personal information.

How to implement a compliance framework?

Implementing compliance frameworks and industry standards involves a systematic and structured approach to establish or update internal policies to align them with applicable regulatory requirements and ensure continuous improvement.

Understanding the applicability

The first step to implementing a compliance framework is to choose the right one for your organization. As previously outlined, it boils down to the type of data you process and the industry regulations applicable to you.

For example, if you are a service organization that processes customer data, SOC 2 is beneficial. If you store or process patient health records in the US, HIPAA is compulsory.

GDPR is compulsory if you collect personal information of those residing in an EU state and PCI DSS is a must if you process cardholder data. In many cases, more than may apply; if you collect personal data of EU residents and process payment cards, you should be PCI DSS and GDPR compliant.

Control Mapping

Once you have finalized the framework, sort the regulatory requirements. This entails identifying the relevant controls mandated by the framework. If your framework is SOC 2, implement controls based on applicable trust principles. The ISO offers a family of guidelines that help businesses address specific security concerns.

Regulatory requirements also include necessary activities around it such as reporting, working up a delivery estimate, setting up a budget, and more. It is a good practice to document the plans and activities. Updating changes, new requirements, and processes – especially areas of high risk, must be an ongoing activity.

Gap analysis and framework implementation

Everywhere gap, gap. And you won’t know it exists until you conduct a risk assessment. A proactive risk management and monitoring program should include:

A process to categorize all assets, wherever it is deployed into the level of vulnerability.
A system to identify the types of risk that threaten the integrity of the assets.
Gain clarity into the granularity of functions, processes, workflows, and interdependencies to identify gaps.
Analyze the impact of these risks and vulnerabilities.
Implement controls and systems to identify, remediate, and mitigate vulnerabilities.
Assign the owner to handle each vulnerability.
Continuously patch systems and deploy new tools as required to manage continuously evolving threats.

What are the penalties if you are non-compliant?

There can be varying levels of consequences in case of non-compliance. From fines and civil penalties to severe criminal penalties and lawsuits, the repercussions depend on the regulations that apply.

For example,

About GDPR, less severe violations can attract penalties of up to €10 million or 2% of the annual revenue of the organization. For more severe violations, the penalties go up to €20 million or 4% of the global annual revenue.
HIPAA violations can result in civil penalties and range from $100 to $50000 per violation with a maximum of $1.5 million per year. It can also result in imprisonment of up to 10 years in case of serious violations.

FAQs

What are the components of the compliance framework?

The four elements of a compliance program are choosing the right framework:

Choosing the right framework
Sorting out the controls specific to your business needs
conducting a risk assessment
fixing the gaps

What are the four types of compliance?

Four major types of compliance include:

Financial compliance
It compliance
Health and safety compliance
Legal compliance is specific to industry or government.

What is the purpose of the compliance framework?

A compliance framework helps organizations mitigate security risks, operationalize existing processes, avoid penalties due to non-compliance, and gain customer trust.

What is the difference between compliance and framework?

Compliance can be compared to the law set by industry specifications or government legislation – it is mandatory to abide by these to avoid legal actions. Frameworks on the other hand offer a set of best practices and guidance that help organizations ensure safety and gain customer trust. In most cases, you will be subjected to legal trouble if you fail to comply.

A Quick Overview of Compliance Framework