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Data privacy & compliance in financial services: The role of consent governance

July 24, 2024

  • Ai Financial Services
  • Banking Compliance
  • Data Privacy
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Ashok Hariharan, CEO & Co-founder of IDfy
Ashok Hariharan, CEO & Co-founder of IDfy

By Ashok Hariharan, CEO & Co-founder of IDfy

In this digital age, data privacy is a critical concern, especially in financial services, where sensitive and personal information is processed daily. The Digital Personal Data Protection Act 2023 (DPDP Act) in India underscores the need for robust data privacy practices, with effective consent governance at its core to ensure data privacy and build customer trust.

The need for urgent privacy-led transformation for enterprises

The urgency for financial institutions to adopt effective consent governance cannot be overstated. Additional rules under the DPDP Act are expected this month, with potential fines reaching to the tune of ₹250 crores for non-compliance. This creates a pressing need for immediate action to ensure all data privacy practices are up to standard.

With the Indian Act differing significantly from its western counterparts, enterprises need to re-imagine their privacy practices and business models centered around “personal data” and obtaining “specified consent.” Challenges include verifiable parental consent, managing consent in all 22 scheduled languages, managing their data processors, among others.

This distinction clarifies that consent management, a subset, focuses on data principals’ rights, while consent governance, the broader framework, encompasses third-party risk management, auditable compliance, and centralized consent lifecycle orchestration within an organization

Importance in Financial Services

The need of the hour is a coordinated action across people, processes and technology as the enterprises embark on this compliance transform and evolve to the new privacy-first India. One may hope that this puts to rest the rampant fraud and spam that the country is plagued with. Given the sensitivity and volume of personal data that Financial services companies process, most of them would fall under significant data fiduciary requirements and incorporating “privacy by design” and “data minimization” as key solution themes could bolster financial services firms to such a compliant future.

Effective consent governance is crucial for:

  • Regulatory Compliance: Navigating the interplay between the DPDP Act 2023 and sectoral regulations from RBI, IRDAI, SEBI is critical for both data fiduciaries and processors.
  • Customer Trust: Transparency in data collection and use fosters trust. When customers know their data is responsibly handled and they have control over it, they are more likely to engage with the financial institution.
  • Risk Mitigation: Proper consent governance mitigates risks associated with data breaches and misuse. Ensuring data processing activities are based on clear, revocable consent helps protect against legal and reputational risks. Unlike other privacy laws around the world, ensuring compliance from data processors supporting the enterprise is something that all fiduciaries must be cognizant about.

Implementing Consent Governance

Financial institutions should consider these key strategies:

Clear and Granular Communication: Clearly explain what data is collected, why, how it will be used, and with whom it will be shared. Allow customers to provide consent for specific data processing activities rather than blanket consent, empowering them to control their data and aligning with DPDP Act principles. Use simple language for consent notices.

Easy Revocation Mechanism: Ensure customers can easily withdraw consent at any time through user-friendly interfaces in online banking portals or mobile apps.

Audit Trails: Maintain detailed records of consent obtained, updated, or revoked to demonstrate compliance during audits.

Leveraging Technology to drive Organizational Change

Technology simplifies and streamlines consent governance processes. Financial institutions can leverage Consent Governance Platforms that provide centralized management of consent records, automate consent collection, and facilitate easy revocation and audit trails. With the constantly changing regulatory landscape, it would be prudent for enterprises to leverage such platforms rather than building capabilities in-house. IDfy, a premier integrated identity platform has recently launched India’s 1st Consent Governance Platform – Privy to elevate privacy programs and aid enterprises on their DPDP Act compliance pathways.

As custodians of consent for the data principals, enterprises should think about incorporating privacy as part of the software development lifecycle to better manage both internal and external stakeholders and challenges. Empowering the Data Protection Office(r) to centrally set-up and manage the privacy program is crucial to reach a DPDP Act compliant future state of the enterprise.

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