SOC 2: A Guide to SOC 2 Compliance

The American Institute of Certified Public Accountants (AICPA) created SOC 2 as a voluntary standard for service organizations. It outlines how organizations should manage customer data based on five main criteria: security, availability, processing integrity, confidentiality, and privacy.

This blog delves into the SOC 2 Guideline, emphasizing its importance and identifying the entities required to follow it. It breaks down the five principles of SOC 2 data security and compares SOC 1, SOC 2, and SOC 3 guidelines. Additionally, it provides a nine-step checklist for SOC 2 compliance.

Let’s get started!

What is SOC 2?

SOC 2 is the acronym for Service Organization Control Type 2. It is a framework that provides guidance for service organizations to help them manage customer data efficiently and securely.

The American Institute of CPAs established the SOC 2 data center regulations as auditing guidelines. These guidelines aim to securely manage customer data, protect the organization's interests, and maintain client privacy according to prescribed regulations, laws, and mandates.

Importance of SOC 2 Guidelines

Here are the key reasons why SOC 2 guidelines matter:

Building Trust and Reputation

1. Trustworthiness: Achieving SOC 2 compliance shows customers and stakeholders that the organization has the necessary security measures to protect sensitive data. This is vital for building trust, especially in industries where data breaches can cause significant damage to both the organization and its clients.

2. Competitive Advantage: Many large organizations demand that their vendors possess a SOC 2 report as part of their selection criteria. By achieving SOC 2 compliance, organizations position themselves favorably in the marketplace. Compliance not only opens doors to new business opportunities but also strengthens its appeal to potential clients who prioritize security and trustworthiness. As a result, organizations gain a competitive edge over non-compliant competitors, enhancing their reputation and marketability.

Enhancing Security and Risk Management

1. Enhanced Security Posture: Preparing for a SOC 2 audit encourages adopting best practices and implementing robust security controls. This proactive approach helps mitigate risks associated with data breaches, which can be financially devastating, with the average cost estimated at around $4.45 million.

2. Operational Efficiency: Achieving SOC 2 compliance requires a deep understanding of the data management processes. This leads to improved operational practices and better risk management strategies, ensuring organizations can quickly identify and respond to potential security threats.

Meeting Customer Expectations and Market Demand

1. Market Expectation: Although SOC 2 compliance is not legally mandated, it has become a de facto standard in many industries, especially for Software-as-a-Service (SaaS) providers. Customers increasingly expect SOC 2 reports before engaging in business, making compliance essential for market participation.

2. Regulatory Alignment: SOC 2 principles align with other regulatory frameworks, such as HIPAA, even though SOC 2 is not legally required. This alignment streamlines compliance across multiple standards, reducing the complexity of adhering to various regulations. Organizations can leverage this alignment to maintain a robust governance posture, ensuring they meet diverse legal and industry-specific requirements.

Who Needs a SOC 2 Report?

If the organization stores, processes, or transmits customer data, achieving SOC 2 compliance is essential. Here’s why:

SOC 2 requirements establish robust internal security controls, creating a secure foundation for the organization’s policies and processes. This foundation enables the organization to scale securely while building trust with customers.

Service organizations often pursue a SOC 2 report because clients demand it. Customers need assurance that their sensitive data remains safe, and a SOC 2 report offers that guarantee. It serves as the gold standard for demonstrating the commitment to security.

Beyond security, a SOC 2 report can unlock new sales opportunities and help the organization move upmarket. It signals sophistication within the organization and provides a powerful differentiator against competitors.

Five Principles of SOC 2 Compliance

The five SOC 2 principles are essential guidelines for organizations, particularly in the technology and service sectors, to manage customer data securely and effectively. These principles form the backbone of a comprehensive framework that ensures robust security and privacy controls. Here's a more detailed breakdown:

1. Security

Security is the cornerstone of SOC 2 compliance and is mandatory for all audits. It focuses on protecting data and systems from unauthorized access, breaches, and other threats. Organizations must implement a range of security measures, including:

• Access Controls: Limiting access to systems and data only to authorized personnel.

• Encryption: Protecting data both at rest and in transit to prevent unauthorized access.

• Regular Monitoring: Continuously assessing systems for vulnerabilities and potential threats.

These controls are vital for preventing data breaches, which can severely damage an organization’s reputation and erode customer trust.

2. Availability

The availability principle ensures that authorized users can access systems and data whenever needed. Organizations must implement measures to maintain system uptime, such as building robust infrastructure and establishing disaster recovery plans. By prioritizing availability, organizations can enhance reliability, minimize downtime, and build trust with their users.

• Build Fault-Tolerant Systems: Ensure systems can handle high loads and potential failures.

• Implement Network Monitoring: Constantly monitor network performance to detect and resolve issues before they affect users.

• Develop Disaster Recovery Plans: Prepare for unexpected events like natural disasters or cyber-attacks to minimize downtime.

Maintaining availability is critical for delivering consistent services and reinforcing customer confidence in the organization's reliability.

3. Processing Integrity

Processing integrity ensures that data is processed accurately, completely, and reliably. This principle is crucial for organizations that rely on precise data for their operations, such as financial institutions or e-commerce platforms. Key controls include:

• Data Validation Checks: Ensure that data entered into systems is accurate and meets required standards.

• Error Handling Procedures: Identify and correct errors in data processing promptly.

• Audit Trails: Maintain detailed records of transactions to verify that data processing is accurate and traceable.

By adhering to this principle, organizations can avoid costly errors, improve operational efficiency, and make more informed decisions.

4. Confidentiality

Organizations must safeguard sensitive information from unauthorized access or disclosure. By prioritizing confidentiality, they protect customer trust and prevent potential legal and financial repercussions. This principle requires organizations to:

• Adhere to Least Privilege: Grant access to confidential data only to individuals who absolutely need it.

• Implement Data Encryption: Encrypt sensitive data both at rest and in transit to protect it from unauthorized access.

• Conduct Regular Audits: Regularly audit access logs and data protection measures to identify and address any potential breaches.

Protecting confidentiality is vital for maintaining customer data privacy and upholding the organization’s reputation.

5. Privacy

Privacy governs the proper handling of personally identifiable information (PII) to ensure compliance with laws, regulations, and customer expectations. Organizations must establish clear policies for collecting, using, and storing PII, obtain explicit consent from individuals, and implement safeguards to prevent unauthorized access. Organizations must:

• Establish Clear Privacy Policies: Communicate how PII will be collected, used, and shared.

• Obtain Consent: Ensure that individuals have given consent for their data to be processed.

• Access to Information: Allow individuals to access, correct, or delete their personal data as requested.

• Notify About Breaches: Inform affected individuals promptly in the event of a data breach.

The privacy principle ensures that organizations respect and protect individual rights, fostering trust and compliance with legal standards.

By implementing these SOC 2 principles, organizations can create a robust framework for managing data security, availability, processing integrity, confidentiality, and privacy. This not only strengthens their overall security posture but also enhances their credibility and reliability in the marketplace.

SOC 1 vs SOC 2 vs SOC 3

The three guidelines—SOC 1, 2, and 3—focus on different aspects of the organization. The table below clearly breaks down the major differences between the three guidelines:

9-Step Checklist of SOC 2 Compliance

A well-designed SOC 2 requirements checklist outlines actionable steps for organizations to meet the comprehensive criteria of the SOC 2 framework across security, availability, processing integrity, confidentiality, and privacy. Below is a detailed 9-step checklist:

1. Choose Objectives

Determine the purpose of the SOC 2 report. The organization’s specific reasons for pursuing SOC 2 compliance will shape its goals and objectives. Clear objectives guide the SOC 2 process, aiding in defining scope, assembling a team, evaluating controls, undergoing auditing, and addressing gaps. Examples include:

• Customer requests for SOC 2 compliance.

• Entering a new market where SOC 2 compliance strengthens the organization's position.

• Enhancing security posture to avoid data breaches and associated damages.

Avoid delaying compliance due to the absence of customer requests or competitor adoption. Proactive information security always provides an advantage.

2. Identify the Type of SOC 2 Report

Select between a Type 1 or Type 2 report based on the organization’s compliance goals:

• Type 1 Report: Provides a snapshot of controls at a specific point in time, confirming their existence.

• Type 2 Report: Assesses the effectiveness of controls over a period (up to 6 months), offering a detailed view of performance.

Consult SOC experts to determine the most suitable report type for the organization.

3. Define Scope

Clearly define the audit scope to demonstrate a thorough understanding of the organization’s data security requirements. This step streamlines the process by focusing on relevant criteria. Scope definition should align with the applicable Trust Services Criteria (TSC):

• Security: Mandatory for all audits.

• Availability: Important if customers are concerned about downtime.

• Confidentiality: Necessary when handling sensitive data under NDAs or specific confidentiality requirements.

• Processing Integrity: Essential for critical customer operations like financial processing.

• Privacy: Crucial when managing Personally Identifiable Information (PII).

Exclude non-relevant TSCs to reduce unnecessary complexity and mitigate cybersecurity risks.

4. Conduct Internal Risk Assessment

Identify and document risks arising from threats and vulnerabilities. Assign likelihood and impact ratings to each risk and deploy controls to mitigate them. Use industry benchmarks for accurate risk scoring, avoiding reliance on subjective judgment. Compliance automation platforms can help build a current risk inventory and define risks at the asset level.

5. Perform Gap Analysis and Remediation

Evaluate current controls and security practices against SOC 2 requirements. Leverage compliance automation tools to identify gaps and vulnerabilities from a centralized dashboard. Address these gaps by integrating with applications and automating evidence collection.

6. Implement and Test Controls

After identifying gaps, implement controls to meet SOC 2 requirements and ensure asset security. This may involve modifying security workflows, introducing employee training, and creating process documentation. Test these controls to ensure effectiveness.

Utilize automation tools to map risks to compliance criteria, test controls, and monitor their health. Promptly address anomalies with context-rich alerts and remediation workflows.

7. Conduct Readiness Assessment

Perform a readiness assessment to confirm the organization meets the minimum SOC compliance requirements for a full audit. Focus areas include:

• Gap Analysis: Detect vulnerabilities and generate recommendations (2-4 weeks).

• Controls Matrix: Document objectives, internal controls, and their characteristics.

• Auditor Documentation: Draft auditor requests and testing procedures.

Remediate gaps based on assessment findings to ensure a favorable audit report. Automation tools can streamline the process and minimize errors.

8. Complete SOC 2 Audit

Engage an independent, certified auditor to complete the SOC 2 audit checklist and generate a report. Select an auditor with proven credentials and experience with similar organizations, despite the potentially high cost. During the Type 2 audit, extensive interactions with the auditor are expected, including answering questions, providing evidence, reviewing internal samples, and addressing non-conformities.

A SOC 2 Type 2 audit typically lasts from two weeks to six months, depending on the volume of corrections or queries. The audit requires a monitoring period of three to six months, offering deeper insight into the effectiveness of the organization’s controls.

Auditors may ask questions such as:

• Is there evidence of background verification for all employees?

• How does the organization ensure that changes in code repositories undergo peer review before merging?

• Can evidence of access removal for resigned employees be demonstrated?

• How does the organization maintain endpoint security across all systems?

In contrast, a Type 1 audit, which does not require a monitoring period, involves presenting a snapshot of the organization’s controls and evidence of compliance. After completing a Type 1 audit, a three to six-month observation period is necessary before applying for a Type 2 audit.

9. Establish Continuous Monitoring Practices

SOC 2 compliance demands ongoing efforts, not a one-time event. Establish robust continuous compliance monitoring practices, as SOC 2 audits occur annually. Continuous monitoring simplifies future audits and facilitates scaling compliance efforts.

Monitoring practices should be scalable, streamline evidence collection, minimize disruptions to employee productivity, and provide real-time alerts for non-compliant activities. Implement a monitoring system that offers a comprehensive view of the organization’s information security health at any time.

Final Thoughts

Organizations that manage large amounts of client data must implement several robust data security layers to ensure protection from breaches. It's important to acknowledge that some of this data may be sensitive, necessitating additional governance for enhanced confidentiality.

This is where security specialists like Akto can help your organization. Akto’s API security implementation empowers your organization to implement SOC 2 compliance and achieve security boosts.

The platform provides robust integration options, an expansive test library, CI/CD compatibility, and change monitoring. Its solutions provide an end-to-end security workflow for the organization's data.

Visit the Akto website to explore its offerings in more detail, or book a demo today.