Protecting customer data is one of the highest priorities for modern technology companies, as data breaches and security concerns can crawl their way into any system left unprotected. For many organizations, the best approach to risk management in this area is through compliance with security frameworks like SOC 2. For customers buying from companies that store sensitive data, compliance with these frameworks can also provide peace of mind.
In this guide, we'll cover the basics of SOC 2 compliance: what it is, why it's important and the different types and criteria involved. IT managers should be well-versed in these topics, so they can make smart procurement decisions when buying SaaS tools.
What is SOC 2?
SOC 2, which stands for Systems and Organization Controls 2, is a security framework that defines how service organizations should protect customer data in the cloud from vulnerabilities, security incidents and exposure risk. It was developed by the American Institute of Certified Public Accountants (AICPA) in 2010 to establish trust between service providers and their customers, based on five Trust Services Criteria (TSC): Security, Availability, Processing Integrity, Confidentiality and Privacy.
What is SOC 2 compliance?
Compliance with SOC 2 is the industry-accepted way for SaaS companies to assure customers that their data will be secure. It isn't required by regulations, but it is accepted globally as an indication of security compliance. An organization can use SOC reports to provide evidence of its cloud security and data protection practices. If a business achieves SOC 2 compliance, it demonstrates that the firm safely and effectively manages the privacy of customer data in the cloud.
Who needs SOC 2 compliance?
If an organization gathers, stores, processes or transfers sensitive customer data, it will likely need to be SOC 2 compliant. Many service providers will try to get a SOC 2 report because customers are requesting it. (As an IT manager, you may be making these requests yourself!) Although the process of proving compliance can be time-intensive and costly, SOC 2 compliance can lead to many benefits.
Why is SOC 2 compliance important for businesses?
SOC 2 compliance is not mandatory for any industry or legally required for SaaS and cloud vendors, but it's still worth it for most vendors to invest in the SOC 2 audit report. There are a number of reasons why SOC 2 compliance is important:
1) Building trust and credibility
SOC 2 is a highly in-demand report in the US market among companies who would need to work with third parties that store customer data. Being able to say your organization is SOC 2 compliant establishes trust with customers and credibility in the overall market.
Additionally, having a SOC 2 certification ready makes it easy to provide evidence of security standards if an external stakeholder – such as an independent auditor, potential customer, business partner or other third party – asks for a report. As an IT manager, you can have confidence in the trustworthiness and credibility of vendors who have achieved SOC 2 compliance.
2) Improving security and mitigating risk
Data breaches are more common than ever these days. 45% of US companies have experienced a data breach, which take 287 days on average to identify and contain. Deploying SOC 2 and its platform – and the new security or compliance procedures you implement – will promote more conversations on what can be improved for risk mitigation purposes.
The SOC 2 certification process will also ensure you have the tools, business processes and security controls in place to quickly spot threats and take necessary action to protect your customers' data. For those working with third-party vendors who are SOC 2 compliant, there is more peace of mind that data will be safeguarded properly.
3) Saving money
Sure, the audit needed to prove SOC 2 compliance will cost money, but considering that the average cost of a data breach globally was $4.35 million in 2022 – and a whopping $9.44 million in the US – a SOC 2 audit that helps companies avoid these risks is well worth it.
As an IT manager, working with SaaS vendors who have SOC 2 compliance can save you money as well, as sharing data between your companies means their risk is also your risk.
4) Building long-term sales success
Customers (and prospective customers) undoubtedly care about their data being protected from unauthorized access, so not having a SOC 2 attestation might providers to lose business to competitors who are SOC 2 compliant.
As an IT manager, you can set your company up for scaleable success by working with vendors who have the proper internal security controls in place.
5) Creating operational visibility
Organizations with SOC 2 compliance have a better understanding of what their own "normal" operations look like, making it easier to monitor and spot issues with activity, user access levels and changes to the system configuration.
SOC 2 Trust Services Criteria (TSC)
The five Trust Services Criteria, previously known as the Trust Principles, are the criteria that external auditors will assess when carrying out a SOC 2 compliance audit. Note that although we will discuss each one below, only adherence to the Security criteria are required for SOC 2 compliance. Many companies will choose to include other criterion in the scope of their audit, depending on factors such as the kinds of data they handle or their industry.
For any criteria an organization adds to their scope, external auditors will look at the design or function of your controls (depending on Type I vs. Type II – more on that below), how quickly you develop an incident response, communication about risks and priorities within the business, and more.
1. Security (required)
Security is the only required category for SOC 2. Here's how the AICPA outlines the criterion:
"Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity’s ability to achieve its objectives."
To achieve SOC 2 compliance, organizations must show a strong commitment to security for their data and applications through tactics like firewalls and access, entity-level and operational controls. This TSC is effort-intensive, requiring multiple teams – from IT to HR to operations – to work together; but it's also a must on the way to getting a SOC 2 report.
Security Common Criteria (CC-series)
The criteria that auditors use to test compliance with the Security category are called the common criteria, or CC-series.
- CC1: Control Environment
- CC2: Communication and Information
- CC3: Risk Assessment
- CC4: Monitoring Activities
- CC5: Control Activities
- CC6: Logical and Physical Access Controls
- CC7: System Operations
- CC8: Change Management
- CC9: Risk Mitigation
2. Availability (optional)
This criterion asks organizations to prove its systems have adequate uptime, performance, network performance monitoring, procedures for handling disaster recovery or security concerns, business continuity plans and more.
Who should include Availability in SOC 2 reports? Businesses who need to prove high-availability, i.e. those whose customers are concerned about operational downtime.
3. Processing Integrity (optional)
This criterion evaluates the reliability, accuracy and timeliness of cloud data processing. Continuous monitoring and quality assurance procedures are part of this.
Who should include Processing Integrity in SOC 2 reports? Organizations who need to show evidence of accurate and timely system processing for critical operations like payroll or financial processing.
4. Confidentiality (optional)
This criterion asks businesses to demonstrate capacity to protect confidential information – including intellectual property, financial data and other sensitive contractual details – through proper privilege and access management.
Who should include Confidentiality in SOC 2 reports?Businesses with customers who require confidentiality, or those who store data covered under contracts like non-disclosure agreements (NDAs).
5. Privacy (optional)
This criterion requires that organizations show competence with privacy principles, particularly with protecting Personally Identifiable Information (PII) from data breaches or unauthorized parties accessing it. PII includes any data points that can identify a specific individual, such as names, Social Security numbers, addresses, ethnicities or health information.
Who should include Privacy in SOC 2 reports? Any organization with customers who store PII.
What is a SOC 2 compliance audit?
Some of the other commonly used security compliance frameworks – including PCI DSS and ISO 27001 — have more strict requirements, but SOC 2 attestation reports and controls can personalized to each organization. Every company can design the internal controls and security processes it thinks necessary and applicable to comply with the Trust Services Criteria. Then, an independent auditor verifies whether the organization's internal security controls are SOC 2 compliant, using these findings to write an attestation report.
SOC 2 Audit Reports: Type I vs Type II
There are two different types of SOC 2 compliance reports that an organization can use:
- SOC 2 Type I – Type I reports assess an organization's systems and internal controls at a specific point in time. It focuses on whether the security measures and controls are designed well.
- SOC 2 Type II – Type II reports cover the same areas as Type 1, but also assess the operating effectiveness over a set period. It focuses on whether the security controls actually function as intended.
Both of these reports show SOC 2 compliance, but which one a specific organization should pursue depends on a number of factors. For example, if you need to show compliance continuously in the future, you may want to pursue a SOC 2 Type II report, which shows your controls are working over a period of time.
If you are in a hurry to show SOC 2 compliance, then a Type I report may be a better fit for your business plans, as it can be achieved faster. You can always use it as a foundation to pursue a Type II report in the future, as it is considered the stronger of the two.
Simplifying SOC 2 compliance requirements for vendors
SOC 2 is complicated for all sides. For businesses trying to achieve SOC 2 compliance, the process is both time- and resource-intensive. Sastrify knows this firsthand, as we secured SOC 2 Type II compliance in December 2022. This was made easier with the help of our compliance automation partner, Drata.
On the customer side – i.e. for those seeking to buy from SOC 2 compliant technology companies – managing these requirements is no easy feat, either. The implications for IT procurement are significant. Any IT manager who has to find IT services that meet the company's compliance standards while also keeping track of all relevant compliance documents has a full plate.
With Sastrify, all aspects of SaaS buying and management are streamlined. You can easily centralize the full SaaS stack – including all those relevant compliance docs for vendors – plus get negotiation support from our team of procurement experts.
With more SaaS startups prioritizing SOC 2 compliance than ever before, there are endless SaaS options to choose from and lots of negotiations to run. Sastrify makes sure you maximize savings, improve risk management and stop wasting precious time. You'll never have to handle negotiations, compliance requirements, or procurement alone again.
