Data Room Security: How to Protect Confidential Documents in Virtual Deal Rooms

Virtual data rooms are security-first collaboration platforms built around zero-trust principles. They allow organizations to significantly minimize the chances of data breaches in the due diligence process and other data-sensitive business transactions.

Virtual data room security can be compared with the world’s most secure banks. VDRs employ banking-grade encryption methods and fulfill compliance requirements set by global and regional governing bodies.

The following is a detailed guide on virtual data room security. We will explore important security features in data room solutions and why they are important. The guide also mentions important considerations when choosing a secure virtual data room and best practices to keep your VDR secure.

What is data room security and why does it matter?

Before discussing VDR security, it is important to know what is a VDR. Virtual data rooms are online platforms that businesses use to share confidential files during deals, audits, or legal processes.

Virtual data room security simply means protecting sensitive documents and information stored in a virtual data room. Security in virtual data rooms is different from traditional cloud storage. Data rooms offer strong security features like encryption and strict access controls. Encryption ensures that even if someone gets access to the data, they cannot read it without the correct key. User controls let companies decide who can see, download, or edit files.

VDRs also offer detailed activity tracking, which makes it easy to monitor who accessed what and when. These features help prevent unauthorized access and reduce the risk of human error. VDR platforms are also compliant with regulatory bodies like FINRA, HIPAA, and GDPR.

A weaker data security system can lead to serious problems, such as:

·       Hackers or competitors might steal private business information

·       There could be data leaks that might cause legal trouble or financial loss. The average cost of a data breach is around $4 million

·       Data breaches can immensely affect stakeholders’ trust

Common threats and vulnerabilities in virtual data rooms

Virtual data rooms are generally considered safe data management platforms. However, they can still be exposed to risks if you do not set them up properly. Human negligence is also a major reason behind data leaks or breaches. Below are some of the most common threats found in a data room and what businesses should do to secure their virtual data rooms:

·       Misconfigured access controls. If you do not configure user permissions accurately, they may access prohibited sections or documents of the data room. Users may be able to view or download sensitive files when they are only supposed to read them. This mistake can lead to data leaks.

·       Weak authentication. Using easy-to-guess passwords or not having two-factor authentication can allow unauthorized users to break into the VDR. It is important to set strong authentication to prevent breaches.

·       Risks of document downloads & screenshots. Allowing users to download or take screenshots of documents increases the chances of data breaches. Your sensitive information will be at risk once it leaves the data room. Using view-only mode in the VDR makes sure no one can download or print the documents.

·       Insider threats. Users who have legal access to the data room may misuse it. An employee or partner may share sensitive data on purpose or by mistake.

·       Compliance gaps. If your data room does not meet legal data protection rules like GDPR or HIPAA, it may land you in legal or financial pitfalls. Choosing a compliant data room is necessary.

Advanced security features in modern data rooms

VDR solutions are well-known for their advanced security features. Here are some common features in a secure data room and how they are helpful.

1.      Multi-factor authentication (MFA)

Online data room solutions offer multi-factor authentication via authentication apps, SMs codes, and recovery codes. Two-factor authentication can stop up to 50% of attacks that target login credentials.

Multi-factor authorization requires users to go through two phases of authentication. Even if the hackers succeed in stealing users’ passwords, they still cannot access the data room. That is because the legitimate user will get an SMS or a recovery code on their personal device, and it is impossible to log in without those codes.

2.      Single sign-on (SSO) integration

Single sign-on (SSO) allows users to log in to multiple applications by using the same credentials. However, it is important to note that SSO is different from just one strong password for all accounts.

Single sign-on technology uses a unique token for every authorization event, which is different from individual account credentials. This makes sure an attacker cannot access a data room account using compromised passwords.

3.      IP-based access restrictions

IP-based access allows companies to define certain IP addresses eligible for virtual data room access. IP restrictions are helpful in stopping attackers who manage to crack the password, the second authentication factor, or even single sign-on. If an IP address is not registered in the data room, an attacker will not be able to access the VDR even if they have bypassed the above-mentioned authentication processes.

4.      Granular permission settings

Online data room solutions allow businesses to have full control over the content access rights for every user. Granular permission settings make sure the users can only work with the data room content to the extent permitted by the administrator. For example, the administration may define who can only view documents and who can edit or print them. This virtual data room protection measure minimizes human error in sensitive information handling.

5.      Dynamic watermarking on documents

Digital watermarks are irremovable identifiers displayed on all pages of the document. Many online data room solutions support dynamic watermarks that update in real-time. Watermarks prevent users from unauthorized file sharing and track the file source in case of a data leak.

6.      Secure spreadsheet/document viewers

A secure spreadsheet viewer is a unique feature found in most advanced data rooms. It enforces access controls to Excel files and makes sure that only predefined users can access content in spreadsheets.

7.      Real-time activity tracking & audit trails

Audit trails are an important feature in virtual data room software. They help management in keeping track of every single action performed in the VDR. Audit logs are important for M&A data rooms where companies have to share information with external users during the due diligence process. Sellers can monitor the activities of all users, and it is easy to trace the source in case of a data leak.

8.      End-to-end encryption (in transit & at rest)

Modern-day data room providers offer advanced encryption tools that encrypt data during transit and at rest. A hacker will not be able to steal data from documents because only authorized users with the right access keys can access the sensitive information.

Compliance standards and certifications

Premium online data room vendors are vigilant when it comes to compliance. They ensure they follow the necessary protocols set by regional and international bodies when designing data room security features. Here are some common certifications in high-end data room merchants.

1.      ISO 27001

It defines frameworks that cover all aspects of data security. They include organizational, technological, human-related, and physical aspects. ISO/IEC 27001 lists over 90 controls for implementation. ISO is a globally accepted organization, and following its protocols gives a message that the company is implementing advanced data protection practices.

2.      SOC 2 Type II

This certification assesses how well a company protects data over a period of time. It focuses on five key areas:

·       Security

·       Availability

·       Processing integrity

·       Confidentiality

·       Privacy

SOC 2 Type II certification gives investors and clients a message that the company can protect information in the long term.

3.      GDPR compliance

GDPR requires businesses (within or outside the EU) to apply privacy-by-default and privacy-by-design measures when handling confidential documents. GDPR regulates the storage, transfer, access, and processing of EU individuals’ data. Companies failing to comply with GDPR may face fines up to 20 million Euros or 4% of their global turnover for their previous fiscal year.

4.      HIPAA compliance

It defines protocols for the secure management of medical data, including protected health information. HIPAA-certified companies protect personally identifiable information to the highest standard. Businesses failing to comply with these regulations may face fines of up to $2 million or more.

The role of user training in enhancing data room security

Training your users is one of the best ways to minimize virtual data room security threats. Properly trained employees are more aware of risks and know how to respond. This helps protect the company’s data and systems. Here are some important factors every data room user should know about:

·       Phishing awareness training. It helps people learn how to spot fake emails, texts, or websites that try to steal information. Many cyberattacks begin with a simple phishing message. Trained workers can easily recognize suspicious messages and are less likely to click on bad links or share private details. This lowers the chance of a data breach.

·       Secure password practices. Training shows employees how to create strong passwords and avoid using the same one for many accounts. It also teaches the value of using password managers and turning on two-factor authentication. Good password habits make it harder for hackers to break into online data room software.

·       Role-based user responsibility training. It helps users understand what they can and cannot access based on their job. Not every user needs access to all company information. When they learn their specific responsibilities, they avoid making errors like changing settings or opening files they shouldn’t.

·       Regular refresher sessions. The nature of cyber threats changes often. It is important to update training sessions according to changing needs. These sessions remind employees of best practices and teach them about new risks.

How to evaluate and choose a secure data room provider

One of the most important things about virtual data room technology is choosing the right data room vendor. There is no formal definition of the best data room software, as needs vary with users or businesses. Still, it is important to consider multiple factors when making your decision. Make sure the vendor justifies the data room price in the form of premium security and other features. Here are some pointers to remember.

1.      What certifications does the provider hold?

Hiring a certified online data room vendor means you are complying with the highest level of data management practices. The nature of the certifications depends on where a business operates.

A healthcare organization operating within the US needs a HIPAA-compliant virtual data room provider. Similarly, companies operating in the EU should look for GDPR-compliant vendors. Certifications like ISO 27001 or SOC 2 Type II are important to gain stakeholders’ and clients’ trust.

2.      Does the provider offer 24/7 support?

Customer support is one of the key factors to look into when comparing virtual data room solutions. Customer care is not only important for VDR setup or training, but you will need it on a regular basis. Look for online data room vendors like Ideals, Merrill Datasite, and SS&C Intralinks that offer 24/7 customer support and have knowledgeable customer care agents.  

3.      What encryption standards are used?

Data encryption is a vital feature to have in your data room, no matter how you intend to use VDR. It protects your sensitive documents from hackers. Ask the vendor about what type of encryption they use. Modern-day providers usually offer 256-bit SSL encryption, which is used by banks and government organizations. Weaker encryption models will put your data at a higher risk.

4.      How transparent is the audit trail?

Audit trails or logs are important to keep an eye on virtual data room activities. You can easily spot any unusual or suspicious activity and prevent data leaks. A good provider should offer clear, easy-to-read audit logs. This adds a layer of security and helps you stay compliant with laws and internal policies.

5.      Can permissions be customized at the file/folder level?

Not every user in the virtual data room needs to have the same access level. For example, not all users should be able to edit or download documents. The data room you choose should allow you to customize access settings for different files or folders.

Best practices for maintaining virtual data protection

Ensuring data room security is not a one-time task. Businesses need to assess and implement best practices for a secure VDR. Here are some of them:

·       Regular access reviews & revoking unnecessary rights. Review users’ access settings regularly to make sure they can only access what’s necessary for them. This will help you prevent insider threats and possible data leaks.

·       Using MFA for all users. Multi-factor authentication adds an extra layer of security beyond just a password. It requires users to verify their identity using a second method, like a phone or app. MFA minimizes the chances of a breach even if the password is compromised.

·       Limiting document downloads. Preventing users from downloading sensitive documents is a great way of reducing security threats. This is important in the due diligence process in M&As and similar business transactions.

·       Enforcing strong password policies. Ask the users to set strong password combinations and update them regularly. You can also encourage them to use password managers.

·       Monitoring activity logs for anomalies. It is necessary to monitor data room users’ activities regularly. Look for anomalies like unusual login times, locations, or data access patterns. Detecting unusual behaviors early can help prevent data leaks.

Comparing providers and real-world scenarios

There are hundreds of data room vendors competing in the market, but not all of them are equal. Different online data room providers vary widely in terms of security, features, user interface, customer support, pricing, and compliance standards.

Some vendors target businesses with basic file-sharing needs, while others target complex and high-stakes business transactions. Ideals, for example, is known for its versatility, offering solutions that scale from small due diligence projects to enterprise-level deals. Datasite targets M&A professionals, private equity firms, and investment bankers, while SecureDocs is more suitable for ongoing usage.

Here is a brief comparison between basic and advanced virtual data rooms.

Conclusion

Data security should always be a top priority when comparing virtual data rooms for your business. Security becomes more important when using a data room for complex processes like due diligence, M&As, or initial public offerings.

The best data room for document security is one that offers advanced features like multi-factor authorization, granular access permissions, dynamic watermarks, data encryption, and IP address restrictions. These features protect your confidential data from external as well as internal threats.

What’s more, it is equally important to educate users about phishing attacks and how to avoid them. Encourage users to follow secure password practices and regularly monitor data room activities to detect unusual user behavior.When choosing a data room provider, look for factors like security, customer support, and how well it complies with data management standards. You can also explore and compare top data room vendors on https://dataroomreviews.org