SaaS compliance simplified: a must-read guide for every SaaS founder

If data is king, then data protection should be an overriding issue for every startup founder. Abbreviations like CCPA, HIPAA, GDPR, IFRS may sound awkward, but SaaS compliance is a set of regulations that cannot be ignored.

In 2023, meeting industry standards and keeping information secure is crucial for avoiding legal issues, building customer trust, and ensuring the success of every tech company. Read the whole article to get an overview of the major regulations and requirements your SaaS might need to meet.

What is SaaS compliance?

The term SaaS compliance describes a set of requirements that a platform needs to meet to keep its data secure.

Your business may have to comply with state, national, and international laws and regulations based on your industry and location. SaaS compliance ensures that the product is credible and in line with local laws and guidelines, and that the data is confidential.

Why is SaaS compliance important?

Data exposure, access by third parties, and cyberattacks are real dangers these days. SaaS compliance is critical for protecting data, retaining customer trust, maintaining legal compliance, and a number of other reasons.

SaaS providers often handle sensitive information and must ensure that data is stored and handled responsibly.

Consequently, awareness of the platform’s compliance builds trust among its target audience. A commitment to meet security practices and data protection requirements makes customers more likely to use the platform. The same goes for investors, who prefer businesses that have implemented at least major security certifications.

SaaS compliance also guarantees adherence to category regulations. Certain industries are much stricter than others, and finance and healthcare serve as textbook examples.

Since companies provide services across various borders and jurisdictions, they need to comply with applicable laws. Failing to do so can result in penalties and fines from regulatory authorities, or even lawsuits from customers.

As a result of compliance, SaaS providers can operate locally without being restricted or hindered by legal barriers.

Other benefits include smoother integration with partners, intellectual rights protection, meeting accessibility standards for people with disabilities, and others.

All of these reasons lead to the conclusion that SaaS compliance is not only crucial for maintaining general data security and law adherence but also for general health of the company and its future potential for growth, including geographical expansion.

Major types of SaaS compliance

SaaS compliance falls into three main categories, each with its own specific requirements.

Financial compliance

In short, financial compliance ensures the safety of transactions and the integrity of financial reporting. It is required in financial, banking, and capital markets. Here is a list of the most popular regulations:

IFRS compliance

International Financial Reporting Standards (IFRS) refer to the accounting rules of public companies. The intention is to make their financial statements transparent and comparable across all the countries that respect the authority of the International Accounting Standards Board (IASB).

IFRS is currently accepted in 167 jurisdictions, including the European Union.

It is established on four basic principles: 

• Clarity: indicates that financial statements must be easy to read and comprehend.
• Relevance: refers to information that is useful, timely, uniform, and important.
• Reliability: means that statements can be checked and reviewed with objective evidence.
• Comparability: is a fundamental principle in accounting, according to which investors, analysts, and creditors can analyze, compare, and evaluate the finances of various companies.

The IFRS rule refers to the statements of financial position, comprehensive income, changes in equity and cash flows.

GAAP compliance

Generally Accepted Accounting Principles (GAAP) is a common set of rules, regulations, and accounting procedures introduced by the Financial Accounting Standards Board (FASB). It is the US equivalent of IFRS.

Companies must submit their financial statements in compliance with GAAP when compiling their accounting records. By using GAAP, a company's financial reports are consistent and comparable, making them easier to analyze, including for investors.

The GAAP framework consists of ten principles:

1. Principle of Regularity
2. Principle of Consistency
3. Principle of Sincerity
4. Principle of Permanence of Methods
5. Principle of Non-Compensation
6. Principle of Prudence
7. Principle of Continuity
8. Principle of Periodicity
9. Principle of Materiality
10. Principle of Utmost Good Faith

ASC 606 compliance

ASC is an abbreviated form of the Accounting Standards Codification and “606” is its most recent edition. Basically, this framework defines revenue recognition by the standardized accounting principles for transactions across various industries.

Its aim is to eliminate variations in how businesses account for their transactions by providing a unified framework for recognizing revenue.

ASC 606 requires a five-step implementation process:

1. Identification of a contract with a customer
2. Identification of the performance obligations included in the contract
3. Transaction price determination
4. Allocation of the transaction price
5. Revenue recognition after performance obligation satisfaction

SaaS data security compliance

These are security regulations and best practices that ensure that a provider protects customer data. SaaS security compliance is of great importance when it comes to mitigating the dangers of third-party access and cyberattacks, building trust with clients, and meeting regulatory requirements.

SOC 2 certification

Service Organization Control 2 is a cybersecurity compliance standard created by the American Institute of Certified Public Accountants (AICPA). It helps SaaS companies demonstrate their commitment to security as organizations that store and process a lot of personal information. SOC 2 is a voluntary certification designed to evaluate how a platform addresses five Trust Principles:

1. Security: refers to the protection of data against unauthorized access.
2. Availability: relates to the accessibility of the service stated in the service level agreement (SLA).
3. Processing integrity: defines whether audited system processing is accurate, complete, timely and authorized.
4. Confidentiality: according to this rule, information designated as confidential should be protected and access to it should be restricted to a specified group of people or organizations.
5. Privacy: a principle upon which personal information is stored, used, and disclosed in conformity with the company’s privacy notice.

There are two types of SOC 2 reports:

• Type I describes the SaaS provider’s systems and defines whether their design is compliant with the Trust Services Criteria.
• Type II goes further by also evaluating operational effectiveness over a specified time.

PCI DSS certification

PCI DSS stands for Payment Card Industry Data Security Standard. Itensures that credit card data and payment information are handled, processed, and transmitted securely.

It was developed by major credit card companies, such as American Express, Visa, MasterCard, JCB, and Discover, to enhance cardholder data security and reduce the danger of data breach and fraud.

PCI DSS is mandatory for all companies that store, process, or transmit payment card data and consists of 12 requirements and good practices:

1. Install and maintain a firewall configuration to safeguard the information of cardholders. 
2. System passwords and other security parameters should not be set using vendor defaults.
3. Encrypt stored cardholder data to protect it.
4. Ensure cardholder data is encrypted during transmission over open, public networks.
5. Antivirus software should be used and updated regularly.
6. Develop and maintain secure systems and applications.
7. Ensure that only those with a business need-to-know have access to cardholder data.
8. Each person with access to a computer should receive a unique ID.
9. Access to cardholder data should be physically restricted.
10. Keep track of all access to network resources and cardholder data.
11. Test security systems and processes on a regular basis.
12. Ensure that all personnel are aware of information security policies.

As for compliance goals, the PCI Security Standards Council (PCI SSC) sets out six of them:

1. Build and maintain a secure network and systems.
2. Protect cardholder data.
3. Maintain a vulnerability management program.
4. Implement strong access control measures.
5. Regularly monitor and test networks.
6. Maintain an information security policy.

Depending on the annual volume of credit card transactions, companies fall into four PCI DSS compliance categories – requiring different levels and frequencies of security assessments and vulnerability scans.

ISO 27001 certification

ISO/IEC 27001 is an internationally recognized standard to improve information security within organizations, regardless of their size, industry, or geography. It was established by the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) and features requirements and best practices for establishing, implementing, maintaining, and improving an information security management system (ISMS). The major goal of ISO 27001 is the protection of confidentiality, integrity, and availability of information.

In most cases, ISO 27001 compliance is not mandatory by law, but it might be expected by one’s partners or in some industries like finance or healthcare.

Regardless of sector, obtaining this certification offers numerous benefits, some of which are listed below

1. Enhanced information security,
2. Improved risk management, which prevents security breaches, financial losses, and reputational damage risks,
3. Increased trust among consumers and stakeholders.
4. Improved operational efficiency,
5. Easier collaboration with partners across different markets.

Becoming ISO 27001-certified means becoming compliant with data protection and privacy regulations, for example with the EU’s General Data Protection Regulation (GDPR).

In ISO 27001, there are 114 controls categorized into 14 subcategories:

1. Information Security Policies
2. Organization of Information Security
3. Human Resources Security
4. Asset Management
5. Access Control
6. Cryptography
7. Physical and Environmental Security
8. Operational Security
9. Communications Security
10. Systems Acquisition, Development, and Maintenance
11. Supplier Relationships
12. Information Security Incident Management
13. Information Security Aspects of Business Continuity Management
14. Compliance

The implementation checklist includes scoping, risk assessment, statement of applicability, policies and controls: address gaps, internal and external audits, and continual improvement.

SaaS personal data privacy and protection compliance

Data privacy compliance relates to the standards that regulate personal data privacy and protection, as well as the implementation of necessary security measures. Three critical compliance frameworks for SaaS organizations are as follows:

GDPR compliance

The General Data Protection Regulation (GDPR) sets out strict legislation that governs how companies process and store personal information. Despite the fact that this regulation relates to European Union countries, in practice most enterprises engaged in international operations are expected to be GDPR-compliant.

Due to GDPR, it is mandatory for SaaS companies to register and monitor all activities associated with data processing. Compliance facilitates the transfer of data to other organizations, but only if they comply with its requirements. Both companies and third parties must be able to explain how and why data is processed, and where they are transferred.

SaaS providers must register all consents, as it is forbidden to process personal data unless the user has explicitly agreed to this. In addition to being able to access the data that the company has collected about them, users now have the right to withdraw consent and have their data erased.

In case of a data leak, organizations must inform data authorities and the affected individuals within 72 hours. GDPR violations can result in fines of up to €20 million, or as much as 4% of the company’s global turnover.

GDPR compliance checklist

This checklist can be used as a guide to assist your organization in meeting GDPR duties and protecting individuals’ personal data rights. A GDPR compliance checklist might comprise the following items:

1. Awareness: Make sure that key personnel and third parties are aware of the GDPR requirements and provide training on data protection.

2. Data inventory: All personal data processing operations inside your organization should be identified and documented. Ensure that each processing activity has a legal basis.

3. Data mapping: Develop a map to illustrate the collection, storage, processing, and sharing of personal data. Provide a list of third-party processors and recipients of the data.

4. Privacy notices: Ensure that data subjects are provided with clear and transparent information about how their data is handled by reviewing and updating privacy notices.

5. Consent management: Examine and update the consent policy to ensure it meets GDPR requirements. It is highly recommended to implement a consent management platform on your websites and other important user touchpoints.

6. Data security: Implement suitable security measures to safeguard personal information against breaches and unauthorized access. Take encryption, access controls, and regular security assessments into consideration.

7. Data protection impact assessments: Assess high-risk processing activities and mitigate potential privacy dangers.

8. Data breach response: Create and test a data breach response strategy that includes methods for notifying authorities and affected individuals in the event of a breach.

9. Third-party contracts: Find out whether your third-party partners are GDPR-compliant. Review data protection clauses in your contracts.

10. Data Protection Officer (DPO): Designate a Data Protection Officer (if necessary) and define their responsibilities.

11. Documentation: Keep a record of data processing activities, data protection procedures, and policies.

12. Regular reviews of GDPR: Conduct periodic audits of your organization’s compliance and updates of GDPR requirements.

HIPAA compliance

The Health Insurance Portability and Accountability Act (HIPAA) is a federal law in the USA that sets the standard for sensitive patient data protection. It prevents the sharing of personal health information (PHI) without the patient’s consent or knowledge.

SaaS providers for healthcare, insurance, and other health-related industries must be HIPAA-compliant to ensure the privacy and security of PHI.

HIPAA compliance consists of the following five main rules:

1. Privacy Rule: governs the use and sharing of protected health information.

2. Security Rule: requires physical, technical, and administrative security safeguards.

3. Enforcement Rule: provides guidance on how to regulate responsibility and impose fines for violations.

4. Breach Notification Rule: specifies when and how violations should be reported.

5. Omnibus Rule: mostly defines how business associates should process PHI.

HIPAA compliance checklist

If you do not know how to get started, run through our checklist below:

1. Create norms and standards for security management.

2. Train yourself and your personnel on the types of patient data, compliance procedures, and HIPAA safeguards.

3. Verify your business associates with PHI access.

4. Implement security measures to ensure compliance with the Security Rule.

5. Implement risk assessment.

6. Anticipate violations, and understand their causes and consequences.

7. Set up a notification strategy in case of a breach.

8. Ensure that all data protection activities are documented.

9. Implement physical and technical safeguards.

10. Appoint a HIPAA compliance officer, if necessary.

CCPA compliance

The California Consumer Privacy Act (CCPA)] is a local data privacy law. It gives residents of California more control over their personal data and establishes requirements for providers that collect, process, or exchange personal information about their customers.

CCPA compliance includes increased privacy protection, the right to know, access, delete, correct, or limit personal information, the right to opt out, and the right to non-discrimination and fair treatment.

CCPA compliance checklist

In order to become CCPA-compliant, make sure all the items below are checked.

1. Determine applicability: Examine whether your company fits the CCPA compliance criteria, such as annual income and the volume of personal information collected.

2. Implement data mapping and inventory: Document what sort of personal information is gathered, processed, or transferred. Identify the purposes for which personal information is used.

3. Update the privacy policy: Include strict CCPA disclosures in your policy.

4. Guarantee consumer rights: Implement mechanisms for consumer requests to access, modify, or delete information and to opt out of marketing activities.

5. Enforce strict data security: Implement adequate security measures to prevent breaches and unauthorized access to personal information. Create a data breach response strategy that addresses and notifies affected parties in the event of a breach.

6. Introduce recurring vendor agreements reviews: Review and update third-party vendor agreements. Ensure they are compliant with CCPA.

7. Implement non-discrimination standards: Make sure that consumers who exercise their CCPA rights are not treated unfairly in terms of service, pricing, or quality.

8. Continuously review and update: Monitor CCPA regulations periodically and continuously upgrade your compliance framework.

How to get started, a.k.a. SaaS compliance checklist

Getting financial, security and data privacy compliance certifications may seem complicated at first, but Rome wasn’t built in a day either. Get started using the checklist below:

1. Identify which compliance standards your SaaS needs to meet.
2. Identify compliance, financial, security, and privacy risks.
3. Prepare a roadmap to a compliance strategy.
4. Implement measures that are in line with the risk potential.
5. Run internal readiness assessment.
6. Consult international compliance specialists for audit.

RST is your trusted SaaS product development company

At RST, we understand that in today's fast-paced world of data-driven operations, ensuring compliance with the ever-changing regulatory landscape is critical for company growth.

If you’re looking to build a SaaS product in according to international regulations – seek no more. We helped a number of companies build their digital product and will be happy to assist you. Tell us about your project and let’s see whether together we can create something great.