The FTC Safeguards Rule: Turning compliance into an opportunity

Compliance with government regulations may seem like a daunting task for most businesses, and with the enforcement of the FTC Safeguards Rule on June 9, 2023, firms involved in tax preparation and any firm that has over 5,000 customer records on premise or in cloud applications may face a whole new set of requirements and penalties. Non-compliance can lead to fines of up to $100,000 or imprisonment for each violation. In addition, officers and directors can be fined up to $10,000 for each violation. 

In addition to this rule, Pubs. 5293, 1345, 4557 and 5708 govern your firm’s behaviors, adding complexity to the compliance landscape. 

However, these regulations also present a unique opportunity to improve your firm’s performance, security and reputation, all while delighting your clients and staff.

Meeting these requirements, if done right, can improve your firm’s operations and strengthen your competitive edge.

The compliance mandate

Firms must comply with the FTC Safeguards Rule, also known as the Gramm-Leach-Bliley Act, and other applicable regulations to protect client data and maintain operational integrity. Compliance may seem arduous, but it presents a unique opportunity to streamline operations, enhance productivity and create a better experience for clients and staff. 

While the rule is extensive, the following are some of the top considerations to keep in mind:

1. Designation of a security coordinator: Firms must designate one or more employees to coordinate their information security program. This person or team oversees and implements the program and ensures that the firm complies with the Safeguards Rule.
2. Risk assessment: Firms should conduct a thorough risk assessment to identify reasonably foreseeable internal and external risks to the security, confidentiality and integrity of client information. This assessment should also evaluate the sufficiency of existing safeguards to control these risks.
3. Implementation of safeguards: Based on the risk assessment, firms must develop, implement and maintain a comprehensive information security program with administrative, technical and physical safeguards designed to protect client information.
4. Regular testing and monitoring: Firms should regularly test and monitor the effectiveness of their information security program, including the safeguards in place. They must adjust and update the program as needed to address any vulnerabilities or changes in technology, business operations or regulatory requirements. The regulation suggests annual testing.
5. Vendor management: Firms must exercise diligence in selecting and managing service providers with access to client information. They should ensure these providers maintain appropriate safeguards to protect client data and are contractually obligated to comply with the Safeguards Rule. This includes your hosting providers.
6. Employee training and management: Firms must provide ongoing training on the importance of information security and their roles in maintaining compliance with the Safeguards Rule. This includes ensuring employees understand the firm’s information security policies and procedures clearly.
7. Incident response plan: Firms should develop and implement a comprehensive incident response plan to address and manage security incidents or breaches. This plan should outline the firm’s steps to contain the incident, mitigate its impact, and notify affected clients and regulatory authorities as required.
8. Continuous improvement: Firms must regularly review and update their information security program to address changes in their operations, technology or regulatory environment. This includes staying informed about emerging threats and best practices to maintain a robust security posture.

Streamlining operations

The first step to turning compliance into an opportunity is to examine the daily tasks your team handles and the number of applications they use, particularly concerning data security. The typical firm may rely on many apps to manage different aspects of their work, from document storage and email communication to project management and billing. Unfortunately, this scattered approach can lead to disorganization, inefficiency and increased security risks.

Instead of adding more apps to their workload, streamline your processes. For example, implementing a single client portal can reduce the number of places where client data resides, and has the added benefit of making security automatic for clients, leading to greater efficiency and a single source of truth for all client communications, including email.

Consider the “toggle tax” when choosing applications for your team, especially when communicating with clients. Context-switching costs are high. In addition to the 40% of time wasted searching for and gathering client documents, staff lose up to another 9% of their time shifting between apps, including email, according to a Harvard Business Review article. This inefficiency can quickly add up, leading to frustration and burnout among team members.

Balancing security, convenience and collaboration

Security and convenience can go hand in hand when adopting the right tools. Single portal solutions can help your firm and clients comply with security requirements while providing time-saving collaboration features. In addition, by choosing an all-in-one client-to-firm platform, your firm can ensure that security is automatic for staff and clients, significantly reducing risk overall.

Moreover, as cybersecurity threats evolve, firms must prioritize security in their operations. Implementing a platform that meets the stringent requirements of government regulations while providing an intuitive user experience demonstrates your firm’s commitment to safeguarding client data. This balance between security and convenience can set your firm apart from competitors and attract clients who value data protection.

Training and educating your team

One crucial aspect of turning compliance into an opportunity is ensuring your team understands the importance of these regulations and the tools you’ve implemented to meet them. Providing training sessions and resources to educate your staff on the regulations and software solutions will empower them to work confidently within the bounds of compliance.

Regularly scheduled training sessions and ongoing education will keep your team up to date with any regulations or software features changes. This training investment will help maintain compliance and improve staff morale and job satisfaction, as they’ll feel more knowledgeable and supported in their roles. It’s essential to foster a culture of compliance and continuous learning within your firm, contributing to improved performance and a more secure environment for your clients.

Client communication and education

Another critical element in turning compliance into an opportunity is effectively communicating with your clients about your firm’s steps to protect their data. Again, transparency and education can help alleviate concerns and strengthen their trust in your firm.

Consider providing clients with resources, such as guides or videos, that explain the security measures you have implemented and how they align with government regulations. In addition, regularly update them on any changes or improvements you make to your processes, demonstrating your ongoing commitment to data protection. 

Keeping clients informed and educated can create a stronger relationship built on trust and mutual understanding. And of course, if you give them a tool that makes security automatic and easy for them, they will appreciate that greatly. This differentiates your firm from others who may unintentionally make working securely with the firm more difficult.

Enhancing reputation through compliance

Compliance with the FTC Safeguards Rule and other regulations like Publication 4557 can serve as a catalyst to improve your firm’s performance and reputation. By creating an environment where security is not only automatic but enjoyable, you demonstrate to clients that their data is a top priority. This commitment to security and convenience will set your firm apart from the competition, leading to greater client satisfaction and a positive reputation.

If you need guidance on your firm’s plan, a team of knowledgeable presenters has created a course on effectively creating a compliant written information security plan (WISP). This course launches on The Grove in early June. Sign up for free to receive notifications and an invitation to the course. 

Conclusion

Embracing compliance as an opportunity to improve your firm’s performance and reputation is a smart strategy. By streamlining operations, reducing the “toggle tax,” and implementing secure solutions, you can delight clients and staff while ensuring their data is well-protected. In addition, investing in the training and education of your team and clients will further strengthen your firm’s commitment to security and foster a culture of continuous improvement.

In turn, your firm will benefit from increased efficiency, cost savings and an enhanced reputation as a trusted partner in the eyes of your clients. By transforming compliance from a burden into an opportunity, you can unlock the potential for growth and success in today’s increasingly competitive and regulated business landscape.