Why background checks are important for SOC 1 and SOC 2 compliance

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Jordie Black
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Companies handling sensitive data related to finance and customer information must maintain strict security standards. The Service Organisation Control (SOC) standards offer a framework for this, ensuring data security, integrity, and confidentiality.

The standards are split into two main categories:

SOC 1: This focuses on controls relevant to financial reporting. If a company is involved in finance-related services—like payroll processing or loan servicing—they'll likely look at SOC 1 guidelines. Within these, background checks play a crucial role in ensuring that those handling financial data have a history free of malpractice. Checks can include criminal records, credit history, and employment verification.

SOC 2: This is a broader framework encompassing controls over security, availability, processing integrity, confidentiality, and privacy. It's relevant for tech companies, including cloud service providers and SaaS platforms. Here, background checks are expanded to cover all employees accessing system processes, aiming to strengthen data security across the business. 

SOC 1: prioritising financial reporting controls

The SOC 1 standard, formally known as the "Report on controls at a service organisation relevant to user entities’ internal control over financial reporting", primarily aims to ensure financial reporting controls. When examining a service organisation's operations and data, these controls are particularly interesting to auditors.

While the specifics controls vary depending on the organisation, the following areas are typically addressed:

Data backup and recovery: Ensuring all financial data is regularly saved, easily retrievable, and safeguarded against unexpected data loss events.

Computer operations: Managing the consistent performance of IT systems that deal with financial data, monitoring for system disruptions and addressing them promptly.

Data processing: Guaranteeing accurate and timely processing of financial data whilst minimising errors from system glitches or human oversight.

Information security: Establishing robust security measures to prevent unauthorised access and protect against potential cyber threats targeting financial data.

Environmental protections: Setting up physical safeguards, such as climate control in server rooms, to provide optimal conditions and protect equipment from damage.

SOC 1 is crucial for service organisations that play a significant role in financial reporting. This includes businesses like payroll processors, loan providers, and others handling financial transactions and reports that could influence their client's financial records.

SOC 2: broader control objectives

Unlike SOC 1, which relies on financial reporting, SOC 2 has a broader remit. It deals with an organisation's controls regarding security, availability, processing integrity, confidentiality, and system privacy.

Critical criteria in SOC 2:

Security: Implements measures to guard against unauthorised access, whether physical break-ins or digital breaches.

Availability: Ensures systems are up and running when needed, maintaining consistent operational availability.

Processing integrity: This involves ensuring all system processing actions are done thoroughly, accurately, timely, and only when authorised.

Confidentiality: Makes sure data labelled as 'confidential' is properly shielded and only available to those permitted.

Privacy: This goes beyond confidentiality by protecting personal information per agreed-upon terms or legal requirements.

SOC 2 is significant for a wide array of service providers in the tech sector. This spectrum includes those who offer cloud services, run data centres or operate SaaS platforms. Within this standard, background checks become crucial, extending to all employees with access to vital system processes. This thoroughness is aimed at supporting data security throughout the organisation.

Background Checks: relevance in SOC Standards

For SOC 1, rigorous background checks are critical to validate that personnel handling financial data are reliable and have no history of fraud or malpractice. This includes criminal record checks to uncover convictions for financial crimes, credit checks to assess financial responsibility, and employment verification to confirm past roles and responsibilities. Financial institutions need assurance that staff will not misuse their access to sensitive data.

For SOC 2, since the scope covers broader system security and privacy, comprehensive background checks should extend to all employees with access to systems processing customer data. Checks help mitigate insider threat risks, validate identities, and prevent potential data breaches by screening for any red flags in candidates' histories. As data privacy regulations like GDPR carry heavy fines for non-compliance, businesses must ensure thorough vetting of all staff with data access to avoid regulatory penalties.

Additional context on aligning with UK regulations

When conducting checks on candidates in the UK, businesses must carefully adhere to regulations like the Rehabilitation of Offenders Act 1974. This law prohibits requiring candidates to disclose convictions after a rehabilitation period. Organisations should consult guidance from the Ministry of Justice and only conduct legally compliant checks, balancing diligent screening and fair opportunity. 

Extra care must be taken regarding sensitive personal data to avoid unlawfully intrusive background checks. The SOC standards, set by the American Institute of Certified Public Accountants (AICPA), give rules for data security. Similarly, ISO 27001  is an international standard for managing information security. For UK companies, following both standards ensures they meet global best practices and UK data protection rules.

Roles and responsibilities

Before aiming for SOC compliance, organisations should do a 'readiness assessment'. This step checks their current systems and processes and identifies improvement areas before an official audit.

Maintaining SOC compliance is a collective effort within an organisation. While Data Protection Officers manage data handling, the IT team ensures the technological infrastructure meets the required standards. Simultaneously, HR and recruitment play pivotal roles in vetting and hiring individuals with the right skills and trustworthiness. Senior management is instrumental in facilitating resources, setting strategies, and defining the overall direction for compliance.

Ongoing monitoring and continuous compliance

Achieving SOC compliance is only the beginning. Organisations must constantly review and assess their processes. In tandem with IT and management, HR departments should regularly revisit background check protocols to ensure they remain rigorous and up-to-date, catering to evolving standards and emerging security risks.

Training and awareness

Consistent training for employees is essential to uphold compliance. HR, alongside department heads, should ensure periodic training sessions are held. This guarantees that staff, especially those in recruitment and those accessing sensitive data, are up-to-date with the current standards, procedures, and best practices, including the significance and methods of thorough background checks about SOC.

Third trust services criteria - change management

Apart from the main parts of SOC 2, 'Change Management' is also emphasised. This means that changes to systems or procedures should maintain current security measures. Proper checks and evaluations are vital to make sure changes are made securely.

Specific UK data laws

Companies in the UK must follow the Data Protection Act 2018. This law is based on the General Data Protection Regulation (GDPR) and gives guidance on how to handle personal data correctly.

Incidents and breaches

If there are data breaches or security issues, organisations need to have a plan to respond quickly. In the UK, serious breaches must be reported to the Information Commissioner's Office (ICO) within 72 hours.

Final thoughts

Achieving and maintaining SOC compliance has become a critical responsibility for organisations handling sensitive customer information. By implementing rigorous background checks, access controls, cybersecurity measures, and staff training, companies can align their practices with SOC's rigorous financial, operational, and data integrity standards.

However, compliance is not a one-time milestone. Ongoing diligence is required through continuous auditing, monitoring, and improvement of processes. Organisations must stay up-to-date on emerging regulations, threats, and best practices. A collaborative effort between HR, IT, legal, and leadership is essential to embed security in the company's DNA.

For service providers, achieving SOC certification signals trustworthiness and transparency to customers. But organisations should not view compliance as just a rubber stamp. Instead, they should leverage the SOC frameworks to re-evaluate and strengthen their security foundations regularly. This ensures resilient customer data and financial information protection in an evolving digital landscape where threats are ever-present. By making compliance a comprehensive and consistent priority, companies fulfil their obligations to safeguard what matters most - their customer's data and trust.

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