Posted by Shivali Anand
April 7, 2022 | 6-minute read (1155 words)
Are you preparing to start a new business and fretting over the multitude of regulations that must be followed? This guide aims to provide an overview of the various startup compliance requirements and frameworks you need to be mindful of in order to conduct your business smoothly.
What to understand about compliance standards
A compliance framework is a body of guidelines that details an organization's processes for maintaining accordance with established regulations, specifications or legislation. If a company wishes to undertake an audit, the auditor or regulator will look for security, stability, long-term sustainability and compliance with laws and regulations within that framework.
However, every compliance framework is different. For example, PCI regulates credit card data handling and is regarded as a compliance framework with more stringent standards. HIPAA is concerned with patient privacy and security. The Committee of Sponsoring Organizations (COSO), the framework used for SOC 2 reports, looks at how effectively a company's internal controls fulfill a wide variety of standards.
Nevertheless, the burden is on founders to understand the various compliance frameworks to select the right one for their customers and business.
Why startups must invest in compliance
Growth is essential, but it is predicated on compliance. As new businesses, startups are focused on development and may find it challenging to prioritize compliance. With marketing initiatives and building a brand, there is often little time and money left over. But one of the first considerations when investing in compliance is deciding which framework will help your startup grow. This choice will affect how much time, money and resources you invest. The more compliance standards your startup requires, the more time and money it will take.
What to know about common compliance frameworks
As companies begin to move toward compliance, entrepreneurs should acquaint themselves with the following five compliance frameworks. These frameworks are the "core" of compliance frameworks for startups.
1. SOC 2 compliance with COSO principles
SOC 2 compliance — which stands for Service Organizational Control — was created to standardize technical audits and processes for cloud-based systems security, privacy and quality assurance. Demand for cloud-based solutions has increased vigilance for data and privacy breaches. Following a common standard like SOC 2 provides your startup peace of mind in terms of meeting clients' security requirements, avoiding costly errors and liability, and growing your information security systems quickly.
A SOC 2 report gives user entities (outsourcing candidates) insight into an Outsource Service Provider's internal data security and privacy measures. To align with Committee of Sponsoring Organizations goals within SOC 2 reports, auditors must review an OSP's use of the COSO framework. The American Institute of Certified Public Accountants made a few minor adjustments to make the transition easier.
Who needs it: Many business buyers seek SOC 2 compliance from their vendors. A SOC 2 audit is critical for growth-oriented B2B companies looking to recruit enterprise clients and climb upmarket.
Who manages SOC 2: The American Institute of Certified Public Accountants.
2. ISO 27001
The most well-known of the ISO/IEC 27000 family of standards is ISO/IEC 27001, which defines an information security management system. Using them allows firms to manage the security of assets such as financial data, intellectual property, employee information and third-party information.
Who needs it: Startups aiming to expand internationally by engaging with enterprise customers.
Who manages ISO 27001: The International Organization for Standardization.
3. SOC 1
The SOC reporting platform, which includes three reporting options: SOC 1, SOC 2 and SOC 3, was launched by the American Institute of Certified Public Accountants.
The differences among the three reports are:
• SOC 1 – This standard is concerned with financials and it necessitates an audit of internal controls related to financial reporting (ICFR).
• SOC 2 – Concentrated on controls for the five Trust Services Criteria: Security, Availability, Processing Integrity, Confidentiality and Privacy. Users who use or rely on your services should receive a copy of this report. This is the most common audit for software firms.
• SOC 3 – Like SOC 2, SOC 3 focuses on the 5 Trust Services Criteria, but it also provides a condensed version of SOC 2 that may be freely disseminated and used as marketing material.
Who needs it: In general, any public corporation or significant nonpublic firm requires SOC 1 certification of their service providers if their financial reporting is impacted, even indirectly.
Who manages it: The American Institute of Certified Public Accountants.
4. PCI DSS
The Payment Card Industry Security Standards Council aims to maximize worldwide payment account data security by producing standards and supporting services that encourage awareness, education and successful implementation by stakeholders. PCI data security standard is a must-have for any startup that processes consumer credit, debit, prepaid or other types of payment cards in any capacity. With the support of companies like Very Good Security and Stripe, it is now possible for startups to fulfill stringent PCI criteria.
Who needs it: Any startup that accepts and processes customers' credit, debit, prepaid or other sorts of payment cards.
Who manages PCI DSS: The PCI Security Standards Council.
The Health Insurance Portability and Accountability Act is a federal law that governs health information security. It lays forth the security and privacy rules for handling personally identifiable medical and health information.
The law is primarily concerned with protected health information or PHI — health data that may be connected to a specific individual, such as their:
• Biometric identifiers (e.g., retina scans and fingerprints).
• Vehicle identifiers.
• Name, address and date of birth (license plates or serial numbers).
• Social security and health insurance numbers.
• Previous interactions with healthcare providers and the government.
• Financial information (credit card numbers or bank ID).
• Contact information (home address, IP address, phone number or email).
• Photographs (primarily facial images).
HIPAA strives to increase healthcare efficiency in addition to protecting PHI. For example, it enables hospitals to share electronic medical records remotely and without the need for unnecessary paperwork. It also makes it simpler for employees to transfer their insurance coverage when they shift employment.
Who needs it: HIPAA laws must be followed by all businesses and employees that work with protected health information.
Who manages it: The Office for Civil Rights (the U.S. Department of Health and Human Services).
How to get professional assistance
Due to the intricacy of compliance frameworks, it is important to seek assistance to evaluate what matters and what doesn't within the context of each one. It's also vital to know what makes sense to implement and how to meet the stage-specific needs as per your particular business requirements.
Here are a few ways to get professional guidance for startup compliances:
• Compliance-related agencies that monitor or provide guidance.
• Businesses that employ software or internal examinations to assist in complying with regulatory standards.
• Hiring executives trained to handle regulatory compliance, such as a corporate compliance officer, chief compliance officer and regulatory compliance officer.
• Enlisting the assistance of a third-party provider/outsourcer to assist with your company's regulatory compliance.