5 “Must-have” Virtual Data Room Features for Financial Services Firms

The importance of securing and managing data effectively cannot be overstated. For financial services firms, this is especially critical as these businesses handle sensitive information daily. This is where Virtual Data Rooms (VDRs) come into play. VDRs are cloud-based storage solutions that provide secure file storage and sharing capabilities, making them an essential tool in the financial services industry.

VDRs offer extensive benefits for financial services companies. They effectively facilitate, or streamline, financial transactions, such as mergers and acquisitions (M&A) due diligence processes, asset lifecycle management, and secure document exchange among internal and external parties. They enable seamless collaboration, reduced overhead costs, enhanced security, and compliance with data privacy regulations.

As a result, the failure to adopt a secure, reliable VDR solution can have catastrophic results for financial services firms, including data breaches, regulatory penalties and fines, and a loss of trust from clients and business partners. In this article, we will share the top five “must-have” VDR features that financial services firms should prioritize when looking for a VDR solution to achieve optimal data protection and compliance.

Why Virtual Data Rooms are Crucial in Financial Services

Financial services firms deal with a wide array of sensitive content in their day-to-day operations. This can be anything from a client’s personally identifiable information and investment data to strategic business plans and confidential contracts. The secure management and storage of these documents, or files, are crucial for getting business done, and maintaining the integrity and reputation of any financial services firm.

VDRs provide a secure online repository for storing and sharing these sensitive files, thus ensuring the privacy and integrity of the information. They also offer controlled access and permission settings, which means that organizations can closely manage and monitor who accesses specific files and what they do with those files. This is particularly useful during complex transactions such as M&A, where multiple parties need simultaneous access to various documents.

Moreover, VDRs facilitate regulatory compliance with numerous data protection laws that govern the financial services industry. Compliant VDR solutions help companies avoid hefty penalties for non-compliance while ensuring that the client’s data is handled in the most secure manner. The following list features a few examples of data privacy regulations in which financial services firms must adhere:

1. Gramm-Leach-Bliley Act (GLBA): This U.S. federal law requires financial institutions to explain how they share and protect their customers’ private information. It also includes provisions to protect consumers from identity theft.
2. Payment Card Industry Data Security Standard (PCI DSS): This is an information security standard for organizations that handle credit card transactions. It mandates that businesses enhance payment card data security, offering protection against credit card fraud.
3. Sarbanes-Oxley Act (SOX): This act imposes strict standards for all publicly traded companies in the U.S. to ensure they protect shareholders and the general public from accounting errors and fraudulent financial practices.
4. European General Data Protection Regulation (GDPR): Though European in origin, this regulation affects global financial institutions dealing with EU citizens’ data. It is designed to harmonize data privacy laws across Europe, protect and empower EU citizens’ data privacy and reshape the way organizations approach data privacy.
5. California Consumer Privacy Act (CCPA): This is a state statute intended to enhance privacy rights and consumer protection for residents of California, US. Any business, including financial institutions, that serve California residents must be in compliance with this law.

Again, this is just a partial list. Ultimately, not utilizing a secure VDR solution could potentially expose a company to unnecessary risks and legal complications.

How VDRs Enhance Financial Services

Virtual data rooms provide financial services firms an innovative platform tailored to streamline document management processes and expedite the completion of various business deals. These solutions are highly beneficial in a myriad of financial procedures, be it M&A transactions, debt raises, joint ventures, divestitures, initial public offerings (IPOs), or other deal type. Financial professionals increasingly utilize VDRs to share critical due diligence documents, foster collaboration among various stakeholders, and efficiently navigate through the labyrinth of complex deals and transactions.

The dynamics of the financial services industry require a high degree of efficiency and timeliness and VDRs facilitate these attributes by enhancing productivity and conserving much-needed time. Why? These professionals often grapple with mountains of data and deals contain several key milestones and hard deadlines that cannot slip. As a result, financial services professionals need advanced VDR features like precise search functions, bulk uploads, and efficient organization mechanisms.

Moreover, VDRs provide an additional layer of security to financial services firms. Equipped with robust data encryption capabilities and granular control access settings, VDRs aid these firms in safeguarding their sensitive information from potential data breaches and cyberattacks.

Advanced security measures not only protect financial services firm but also enhance the trust and confidence of their clients. Clients can rest assured knowing their data is handled with the highest level of care and protection, fostering a stronger and more reliable relationship between the financial institution and its customers.

In total, VDRs not only enhance efficiency and productivity; they play a pivotal role in building a solid reputation for financial services organizations.

Risks of Not Using Virtual Data Rooms

While VDR’s many benefits are indisputable and readily apparent, the potential risks associated with neglecting to utilize them are just as significant, and therefore cannot be taken lightly. Data breaches, which are becoming increasingly common, as well as unauthorized access to sensitive information, are major threats that have the potential to critically undermine a financial firm’s reputation and financial standing.

These risks pose a very real danger to the companies and can lead to severe repercussions, including hefty financial penalties which can be crippling. It can also result in the loss of client trust, which is very difficult to regain. In the worst-case scenarios, these risks could even potentially endanger a financial services firm’s operational capabilities, rendering them unable to function effectively, leading to business loss and even possible dissolution.

In addition, without the implementation of VDRs, financial firms may be faced with inefficient document management along with difficulties in collaboration. This inefficiency is particularly obstructive during critical processes such as M&A transactions and due diligence procedures. These processes could be significantly slowed down, leading to missed opportunities and a subsequent decline in business performance.

Luckily, VDRs address these issues effectively, transforming these potential vulnerabilities into opportunities for enhanced productivity and security. By offering a secure platform for data storage and exchange, a well-managed VDR solution can significantly increase a firm’s efficiency in document management and collaboration, ensuring that critical processes are not hindered.

Ultimately, utilizing VDRs is not just about mitigating risks, but also leveraging technology to enhance business operations, security, and regulatory compliance.

Top Five “Must-have” VDR Features for Financial Services

Given the important role that VDRs play in financial services, it is essential to choose a solution with features that cater specifically to the needs of businesses in this industry. While several features make a VDR valuable, the following five features are particularly important for financial services institutions:

VDR Must-have Feature #1: Data Encryption

This feature is non-negotiable. Considering the extreme sensitivity of the data that financial services firms encounter and handle on a daily basis, it becomes an absolute necessity for a Virtual Data Room (VDR) to provide high-level data encryption. This advanced feature safeguards the documents stored within the virtual data room from unauthorized access and any potential data breaches.

It is crucial to find or use a VDR solution that offers at least AES 256-bit encryption for data at rest and TLS 1.2 encryption for data in transit. This level of encryption strength is currently regarded as the industry standard for data protection. These encryption levels and other encryption best practices ensure that the stored data is kept secure during any transmission or while at rest, adding an extra layer of security that makes it virtually impossible for unauthorized individuals to decrypt and gain access to the crucial information.

Choosing a VDR provider that goes the extra mile in offering high-grade encryption not only reinforces the security of your data but also goes a long way in keeping your firm compliant with relevant data protection laws and regulations.

VDR Must-have Feature #2: Access Controls and Permission Settings

Not everyone within an organization should have access to all documents and files. This is especially true if the files contain sensitive or confidential information intended for specific eyes only.

A well-designed Virtual Data Room (VDR) provides a solution to this problem, as it offers the administrator the ability to set detailed access controls and permission settings. These controls may be designed to suit individual roles or responsibilities within the firm.

For instance, an HR manager would only need access to employee records and not financial data. By the same token, a financial analyst may not need access to employee records but should be able to view and download financial statements and reports. Therefore, a VDR solution should allow the firm to micromanage who can view and download specific information, based on their role and need for the information.

A comprehensive VDR also provides the much-needed assurance that unauthorized individuals are kept out and cannot access confidential data. This is crucial in the current threat landscape, where data breaches can lead to significant financial losses and reputational damage.

By controlling access to sensitive content, a VDR substantially enhances the overall security framework of the firm. Therefore, businesses that handle sensitive information regularly should consider investing in a reliable and secure VDR.

VDR Must-have Feature #3: Document Version Control

In collaborative scenarios, such as those encountered during M&A transactions or complex strategic planning initiatives, multiple parties often need to access and modify shared documents. This could include company executives, financial analysts, legal advisors, and other stakeholders, all of whom may be contributing to the development and refinement of these key documents.

Document version control allows everyone working on a project to see the most recent version of a shared document and also review the progression of the document through its previous versions. This system can come in handy when various stakeholders are participating from different geographical locations or time zones. By providing a timeline of edits and updates, version control systems help to reduce confusion that might arise from multiple edits.

They also serve as a form of audit trail, as they allow users to track changes and see who made them. This promotes accountability and transparency amongst the parties involved.

The main objective of document version control is to ensure everyone is “on the same page,” regardless of when or where they’re accessing the document. This way, every stakeholder has a clear understanding of the document’s evolution, and any decisions or actions can be based on the most recent and accurate information. This aids in maintaining fluid communication and cooperation, which are key to successful collaborative scenarios such as M&A transactions or strategic planning initiatives.

VDR Must-have Feature #4: Audit Logs

This critical VDR feature effectively monitors and keeps a comprehensive log of all activities associated with a particular file. It systematically records crucial details such as who had accessed a specific document, along with logging in the exact time and date of when the document was accessed. Moreover, audit logs detail what actions were taken by the individual, whether they merely viewed the document, edited it or downloaded it, providing a detailed history of interactions with the document.

This functionality turns out to be of prime importance for ensuring adherence to regulatory compliance requirements. Compliance audits often necessitate detailed records of document access and modification, and this feature makes handling those needs straightforward and efficient.

Furthermore, it can also prove to be an invaluable tool in providing important evidence in the case of a dispute or disagreement, resulting in an eDiscovery or legal hold request. If there’s ever a challenge concerning who had access to specific information or what changes were made to a document and when, a VDR’s tracking feature can provide unequivocal evidence to settle such disputes. It heightens security and accountability, making it an indispensable tool within the VDR.

VDR Must-have Feature #5: Compliance Tools

The financial services industry is one of the most regulated industries in the business world. This is due to the need to protect consumer information from unlawful use and maintain its confidentiality, integrity, and accessibility.

Therefore, when looking for a Virtual Data Room (VDR) provider, financial services firms should consider one that incorporates features specifically designed to assist with demonstrating compliance with most data privacy regulations. For instance, a suitable VDR should include automatic notifications of changes in data privacy regulations. This feature keeps firms up-to-date with the ongoing changes and advancements in data protection laws, ensuring your firm is consistently compliant and helps you avoid costly penalties for non-compliance.

Another beneficial feature to look for is the inclusion of reporting tools. The ability to generate precise and comprehensive reports can greatly facilitate the auditing process. It allows your firm to quickly and effectively analyze data usage, access, and security, which is extremely useful in maintaining transparency and identifying potential threats or breaches.

Additionally, a good VDR solution should offer templates for compliance documentation. Compliance documents can be time-consuming and complex to create, so having pre-defined templates can streamline this process. It can ensure that all necessary information is included and presented in a consistent, professional manner. These templates can be essential in demonstrating your firm’s adherence to the established data protection laws and regulations.

In total, compliance with data protection laws is crucial in the financial services sector, and the right VDR solution can add tremendous value.

5 “Nice-to-have” Features of VDRs for Financial Services

In addition to the above “must have” VDR features, these additional “nice to-have” features will not only complement any VDR solution but also increase its value in any financial services institution.

• Data Room Archiving: This feature provides a notable benefit to the firm as it enables them to maintain a comprehensive, permanent record of all activities occurring within the Virtual Data Room (VDR), a secure online repository. Critical actions including but not limited to file uploads, views, downloads, and even edits to existing documents are all meticulously recorded. This meticulous recording is not solely for the purpose of data organization. It carries significant legal and regulatory implications as well. In the case of regulatory compliance, this detailed log can prove invaluable. It provides undeniable proof of compliance with data handling and privacy standards, which is critical in industries such as finance or healthcare where data protection is heavily regulated. Should the firm find itself in the middle of legal disputes, this feature becomes even more crucial. It can serve as an irrefutable digital paper trail, detailing who accessed specific data and when, thereby ensuring accountability. This could potentially serve as key evidence, affirming the firm’s integrity and professionalism in handling and protecting sensitive data.
• Multi-Factor Authentication (MFA): Adding this additional level of security creates a robust barrier against unauthorized access by necessitating an extra verification step during the login process. MFA provides a double-check system that significantly increases the safety of the system, as it requires users to provide two forms of identification before they can gain access. This system is particularly vital in securing VDRs, a technological equivalent of a physical secure room, which contains vital and confidential information. By incorporating this additional verification step, the VDR can efficiently ensure that only authorized individuals can access the sensitive data it houses. Consequently, this reduces the risk of data breaches, which can be catastrophic in terms of both reputation and resources. This added layer of security, therefore, becomes vital in preserving the integrity of the VDR and the precious data it safeguards.
• Real-time Activity Tracking: This feature provides a powerful tool for administrators, enabling them to keep track of all happenings within the VDR in real-time. It’s not just about passive observation, but about keenly noting and scrutinizing every action and change that occurs. This superior level of monitoring significantly assists in identifying any suspicious patterns that may arise. Whether it’s unusual access times, multiple attempts to access restricted data, or uncharacteristic data transfers, the system swiftly brings such incidents to light. Once an irregularity is detected, administrators can quickly determine its nature and severity. This allows them to respond in an informed, efficient manner, taking needed corrective action promptly. The real-time monitoring feature is thus pivotal in maintaining the security and integrity of the VDR, providing administrators with the means to prevent potential data breaches or misuse.
• Multi-language Support: Financial transactions often involve parties from different countries. In these scenarios, the effective sharing and understanding of information are crucial and a VDR with multi-language support can make a significant difference. A VDR with this feature can easily translate data, thereby simplifying the collaboration among international parties involved in the financial transactions. In addition to easing communication, a multi-language supported VDR can also greatly improve document navigation. It allows users from various backgrounds to browse through documents in their preferred language, enhancing their ability to understand the content and contribute effectively to discussions and decision-making surrounding the transactions.
• 24/7 Support and Training: Round-the-clock technical support is an invaluable service offering that guarantees any potential issues or technical glitches with the VDR are promptly identified, diagnosed, and resolved. This ensures that the VDR functions smoothly and efficiently at all times, reducing the risk of costly downtime or data loss. In addition, providing regular, thorough, and detailed training sessions can significantly enhance users’ ability to navigate and leverage the VDR platform more effectively. It can empower users to fully understand, utilize, and maximize all the advanced features and functionalities of the VDR. This not only improves productivity and efficiency but also fosters a better user experience, leading to increased satisfaction and higher rates of adoption and engagement. These training sessions can be tailored to cater to the varying skill levels of different users, from beginners to advanced users, ensuring everyone can benefit from them.

  Financial services firms looking for a robust VDR solution that enables data protection and regulatory compliance but also efficiency, effectiveness, and ROI should strongly consider these additional VDR features.

  Kiteworks Helps Financial Services Firms Protect Their Sensitive Deal Flows with a Secure Virtual Data Room

  Virtual data rooms are a key tool for financial services firms, bringing enhanced security, efficiency, and compliance to their operations. With the right VDR features, financial firms can securely manage and share sensitive data, collaborate effectively, and comply with regulatory standards. They provide a secure platform for managing complex transactions and protecting sensitive data, while their absence can lead to substantial risks. Features like data encryption, access control, real-time activity tracking, two-factor authentication, and 24/7 support are essential for an effective VDR. By leveraging these features, financial service firms can not only safeguard their operations but also build a secure and trustworthy relationship with their clients.

  The Kiteworks Private Content Network, a FIPS 140-2 Level validated secure file sharing and file transfer platform, consolidates email, file sharing, web forms, SFTP and managed file transfer, so organizations control, protect, and track every file as it enters and exits the organization.

  With Kiteworks virtual data rooms, financial services firms have a secure online space where sensitive data can be stored and shared. It is designed to provide secure file sharing for sensitive data and enables secure customer access to personal data in compliance with GDPR.

  Kiteworks virtual data room capabilities let organizations send, share, and receive sensitive content while enforcing strict granular access controls and role-based permissions to files and folders, so only authorized personnel with a “need to know” have access. Files are sent via secure email, fully encrypted, directly to and from deal room folders. Authorized users receive automatic notifications of downloads, uploads, new versions, and comments. Features include Mobile and web interfaces, and plugins for Outlook, Office, and G Suite, ensure deal partners can upload and download files from any location and most major enterprise applications. Full-text search and simple drag-and-drop or bulk upload of any file type or size make finding and sharing content incredibly easy and efficient.

  Kiteworks deployment options include on-premises, hosted, private, hybrid, and FedRAMP virtual private cloud. With Kiteworks: control access to sensitive content; protect it when it’s shared externally using automated end-to-end encryption, multi-factor authentication, and security infrastructure integrations; see, track, and report all file activity, namely who sends what to whom, when, and how. Finally demonstrate compliance with regulations and standards like GDPR, HIPAA, CMMC, Cyber Essentials Plus, NIS2, and many more.

  To learn more about Kiteworks, schedule a custom demo today.

  Additional Resources

  • Blog Post Using Virtual Data Rooms for Secure File Sharing
  • Blog Post Secure File Sharing for Mergers and Acquisitions
  • Blog Post 8 Types of Data You Definitely Need to Encrypt
  • Blog Post 9 Secure File Sharing Best Practices for Professional Services Firms
  • Brief Optimize File Sharing Governance, Compliance, and Content Protection