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22 February 2023

data governance banking

Data governance best practices in banking & finance

The banking industry is entrusted with vast amounts of sensitive and confidential data, ranging from users’ personal information to their financial transactions. The responsible use of this information presents an opportunity to improve services and make informed decisions. However, it also poses significant risks if not properly managed. That’s why data governance best practices are critical for banks and financial institutions to ensure the security, compliance, and efficiency of their operations.

In this guide, we’ll explore essential data governance practices that can help mitigate the risk of data breaches and maximize the value of sensitive data in the banking industry.

Develop a clear data governance framework

A well-defined data governance framework is essential for effective data management in the banking industry. This framework should outline the policies, procedures, and guidelines for data management, including data quality, security, privacy, and compliance. It should also define the roles and responsibilities of different stakeholders, including the Chief Data Officer, data stewards, and data users. The framework should be tailored to the specific needs and requirements of the banking industry, including regulatory compliance and risk management.

Comply with regulations

Compliance with current regulations is crucial for banks and financial institutions that store sensitive consumer data. These organizations are entrusted with confidential information such as users’ personal identification details, financial records, and transaction history. Protecting the privacy of such information is a legal and ethical responsibility of these institutions.

To this end, governments have established several measures to safeguard users’ privacy and protect their data from unauthorized access or misuse. Institutions must comply with these regulations to ensure that their operations are secure and in compliance with the law. Some of the key regulatory measures that banks and financial institutions must comply with include the following:

General Data Protection Regulation (GDPR)

The GDPR is a legal framework that standardizes data protection regulations across the European Union (EU). It was established to regulate the processing and free movement of personal data within the EU. Under GDPR, banks and financial institutions must obtain users’ explicit consent before collecting and processing their data. They must also ensure that data is processed lawfully, transparently, and for a specific purpose. In case of a breach, the institution must notify users and the relevant authorities within 72 hours.

Markets in Financial Instruments Directive II (MiFID II)

MiFID II is a legal framework that regulates financial markets and institutions operating within the European Economic Area (EEA). It aims to enhance transparency, protect investors, and promote competition in financial markets. The directive requires banks and financial institutions to establish policies and procedures to manage and mitigate conflicts of interest. It also obliges institutions to keep accurate and complete records of transactions and client communications for a minimum of five years.

Payment Card Industry Data Security Standard (PCI DSS)

The PCI DSS is a set of security standards established by major credit card companies to protect users’ payment card data. It requires banks and financial institutions that process, store, or transmit payment card data to comply with a set of stringent security standards. These include requirements such as maintaining secure networks, implementing strong access control measures, regularly monitoring and testing security systems, and maintaining an information security policy.

Establish data security & privacy protocols

Data security and privacy are critical considerations in the banking industry, where sensitive and confidential customer data is routinely collected and processed. Establishing robust data security and privacy protocols, including access controls, data encryption, and data masking, can help protect sensitive data from unauthorized access and data breaches.

Access controls are one of the most effective ways to protect sensitive data. Banks and financial institutions should implement access controls to restrict access to confidential data to only those who need it to perform their job duties. This can include measures such as password-protected access, two-factor authentication, and role-based access controls.

Data encryption is another vital security measure for the banking industry. Encryption transforms data into a code that can only be read by someone with the appropriate decryption key. Banks and financial institutions can encrypt sensitive data at rest (stored on servers or other devices) and in transit (when data is being transmitted over networks).

Data masking is another data security measure that is gaining popularity in the banking industry. Data masking involves replacing sensitive data with realistic but fictional data. This helps to protect sensitive data from being exposed or misused in non-production environments or for testing purposes.

Foster a culture of data governance

A successful data governance program requires the involvement and commitment of all stakeholders in the banking industry. This includes executive leadership, business managers, IT professionals, and data users. Fostering a culture of data governance, where all stakeholders understand the importance of data management and are committed to its success, can help ensure that data is effectively managed and used to drive business success. This requires ongoing training and education programs, as well as effective communication and collaboration between different stakeholders.

Share governance practices with all teams

Sharing the data governance plan with all teams and management is essential for ensuring that everyone in the organization understands their roles and responsibilities when it comes to managing data. While it is common practice to designate a single individual, such as the Chief Data Officer or the Data Protection Officer, as the data manager, each worker must take ownership of the data in their possession. This requires them to be aware of the company’s comprehensive data governance strategy, take appropriate action, and make timely decisions.

Data is a valuable asset for the company, and every leader, manager, and employee must be involved in the data governance plan to achieve actual results. By fostering a culture of data ownership and responsibility, companies can ensure that data is effectively managed and used to drive business success.

In addition, companies in the banking and financial services industry need to regularly assess their data governance practices’ efficacy. One way to do this is by defining and monitoring key indicators such as data quality scores, risk frequency, and security incident rates. These metrics comprehensively overview the company’s profitability, expenses, and potential issues. If the outcomes fall short of expectations, corrective action can be taken to save money, improve security, enhance data quality, or increase profitability.

In today’s environment, banks and financial service companies must prioritize data governance to ensure regulatory compliance and prevent data breaches. This requires establishing appropriate strategic procedures and the involvement of all employees to ensure data compliance and continuous improvement. By doing so, these institutions can effectively manage and leverage their data assets to drive business success.

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