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While SEBI norms hold AMCs and RTAs for data leakages, your clients may lose trust in you if their data is compromised.
Keeping this in mind, Cafemutual recently conducted a webinar on ‘Data Security in MF Distribution Business’ and hosted Amit Shah, Founder & CEO, Wylth. The session was moderated by Nishant Patnaik, Associate Editor, Cafemutual.
Let us look at some key highlights of this session.
Data leakages
Amit highlighted that client data is typically stored in three systems: RTAs, AMCs, online players/ MFDs. While RTAs and AMCs are considered secure due to their robust infrastructure and evolving capabilities to protect client data, online distributors also spend a lot of money to ensure safety of data. MFDs should also fence their such data from being downloaded to gain clients’ trust.
Citing example of western countries, Amit said that in Western countries, distributors are accountable for breaching data security.
Highlighting the importance of maintaining clients trust, Amit said that MFDs should ensure that their clients feel safe and confident when sharing personal data. This trust not only fosters a strong relationship between the MFD and the client but also contributes to the longevity of their business, he added.
Amit gave four simple tips to secure client data:
Data encryption: When we need to keep information safe during its journey from one point to another, we should use encryption. It's like putting a message in a locked box before sending it. With encryption, even if data is intercepted, it remains safe from hackers trying to steal it.
Access control: MFDs need to ensure that data access is restricted appropriately within the organization. This means implementing controls to prevent unauthorized access to sensitive information.
Employee and clients training: It's crucial to educate both employees and clients about using your services securely. This involves teaching them about potential risks and steps to mitigate them, as well as providing guidance on best practices on data security.
MFDs should also exercise caution while sharing personal or financial information of clients on messaging/email platforms like WhatsApp or Gmail. These platforms may be easily accessible and increase the risk of data leakage.
Strong data back-up
MFDs should ensure that client data is securely stored and protected, with restrictions on data transfer and encryption in place to prevent unauthorized access.
Consequences of data breaches on MFD/RIA
- Losing incremental business
- Reputational damage
- Losing the long-standing trust of a client
- Legal and regulatory consequences
- Operational disruptions
- Negative news
If data breach happens
- Acknowledge the incident and inform your clients promptly to maintain transparency
- Identify the source of the hack to address vulnerabilities and prevent future breaches
- Notify the relevant authorities such as RTA and AMCs
- Enhance and verify overall security measures to prevent the recurrence of similar incidents
Resolution
- Encrypt sensitive data and password-protect documents for added security
- Implement software solutions for distributing and storing data internally, ensuring it remains within authorized circles
- Choose reputable service providers to minimize the risk of data breaches and enhance overall security measures
You can watch the entire video by clicking here to know more.
