How Will Digital Transformation Change Your Compliance Risk?

Over the past years, businesses around the world have rapidly accelerated their digital transformation – but have their approaches to compliance kept pace with the changes? Companies that do not keep compliance top of mind as part of their digital transformation strategy risk financial and reputational damages that can reduce or even outweigh the benefits of modernization. And with a rise in data privacy regulations and more conscientious consumers, the costs of non-compliance are even greater.

This article will help you understand how digital transformation processes like moving to the cloud, modernizing apps, and implementing data-driven decision-making can impact compliance risk so you can plan a responsible and sustainable digital transformation.

Regulating the New Digital Landscape

Over the past years, a rapidly changing and highly competitive digital landscape has forced businesses to become increasingly agile. In a race to add new features and capabilities, companies often treat compliance as an afterthought. A 2020 Deloitte survey of financial service firms found that while 49% of those surveyed were in the midst of accelerating their digital transformation, only 23% were also updating their governance and reporting mechanisms.^[1]

This trend became even worse as the pandemic accelerated the pace of change. But as Forbes noted, “The stop-gap measures put in place at the start of the pandemic might no longer make sense or be secure enough. This year is about refining and perfecting the solutions you’ve put in place to make them more efficient and effective.”^[2]

Meanwhile, attacks have become more common and regulations have increased, making the risk of non-compliance even greater. Earlier this year, Reuters reported on an increase in both global regulations and private litigation against companies that fail to protect personal data.^[3] Ultimately, businesses that do not take compliance into account during their digital transformation can suffer significant financial and legal repercussions–not to mention reputation damage that can have lasting effects on their bottom line.

Impact of Modernization on Compliance

Implementing Data-Driven Decision Making

A big part of many companies’ digital transformation plans involves leveraging user data to personalize and improve the user experience. However, a 2021 McKinsey study of digital analytics and transformation leaders revealed that “Many projects have minimal controls designed into the new processes, underdeveloped change plans (or none at all), and often scant design input from security, privacy, and risk and legal teams.”^[4]

This opens them up to huge compliance risks, since third-party monitoring solutions like Google Analytics do not adhere to GDPR and other data privacy regulations by default.^[5] In addition, increased data collection means even steeper penalties for data breaches. In fact, IBM’s 2021 Cost of a Data Breach Report estimated that the average cost of a data breach is $180 per record of personally identifying information.^[6]

Zero-trust is a modern approach to security that reduces these risks by extending the narrowest possible access permissions to users, systems, and employees, minimizing the damage threat actors can do in the event of an attack—and, as a result, reducing the compliance fines and penalties that would occur after a data breach.

Modernizing Applications

Modern applications are atomized into components that can be independently deployed and managed, enabling businesses to quickly release, scale, and replace features. This can improve the agility of security teams, since it enables them to quickly patch vulnerable applications.

However, the increased complexity of modern applications means there are more entry points where an attacker can gain a foothold into applications and attacks can be harder to detect. And the growing use of APIs further complicates privacy and security, as most data privacy laws hold businesses responsible for how third parties handle their customers’ data.

To mitigate these risks, businesses should use a proactive approach to cybersecurity that leverages analytics to understand where vulnerabilities exist and help build threat intelligence programs. In addition, modernizing applications with serverless functions can simplify security, since companies do not have to secure containers; they only need to secure their code and user data. Serverless applications also scale automatically, making it easier to comply with regulations that require high availability for user data.

Adopting New Infrastructure

With the rise in remote work and need for agile, scalable applications, cloud adoption has skyrocketed over the past few years. Since cloud providers are responsible for securing infrastructure, migrating to the cloud can simplify and strengthen protections by ensuring servers are always updated with the latest security patches.

However, moving applications and data out of on-premise data centers and into the cloud can make it harder to adhere to different countries’ data privacy laws, especially those that restrict cross-border data transfers. Because cloud infrastructure is centralized in a few regional locations, data is often stored or processed far away from where it is generated or needed. And because cloud providers are the ones responsible for transferring data, companies have less control and visibility over data processing than they would with legacy infrastructure.

Edge computing is a newer infrastructure model that provides a solution to this problem. Like cloud providers, edge platforms deliver on-demand resources over the Internet and using infrastructure that is managed and secured by the provider. Unlike cloud data centers, edge locations are highly geographically distributed, so data is always processed and delivered as close to the end user as possible – making it easier to keep data local.

Conclusion

Although digital transformation can significantly improve scalability, agility, performance, and user experience, it often requires businesses to adopt new technologies and processes that increase complexity while reducing control and visibility. And in today’s regulatory landscape, it’s crucial that businesses are conscientious about how their data is stored, processed, and secured, making it more important than ever to partner with a service provider that values privacy and security.

Azion’s Edge Platform simplifies compliance by building security into every edge location, and has obtained PCI and SOC 2 certification across its entire edge platform. And with integrated security and analytics solutions, businesses can build zero-trust security programs and maintain visibility of their user data. To learn more, visit our compliance page, or check out our blog on reducing compliance risk through zero-trust security.