Evaluating Data Providers: Checklist For Compliance

Silvio Bonomi
May 23
10 min read

Updated: 6 days ago

Non-compliance costs businesses millions. Staying compliant with data regulations like GDPR and CCPA isn't just a legal requirement - it protects your reputation, avoids fines, and maintains customer trust. Here's what you need to know:

Non-compliance costs: Businesses face an average of $14.8 million annually in penalties and damages.
Key risks: Breaches, legal fines (up to 4% of global revenue), and loss of customer trust (65% of customers lose trust after incidents).
Essential steps for compliance:
- Verify data collection practices and consent mechanisms.
- Ensure adherence to legal standards like GDPR and CCPA.
- Demand robust security measures (encryption, access controls, audits).
- Review and enforce legal agreements with clear data handling terms.
- Conduct regular compliance checks and risk assessments.

Quick Tip: Start by evaluating your data providers’ documentation, security protocols, and certifications to ensure they align with global regulations. Compliance isn’t optional - it’s a necessity to protect your business and your customers.

1. Basic Legal Requirements

Businesses face steep penalties for noncompliance, averaging $14.8 million annually. This makes adhering to basic legal requirements not just important but essential to avoid costly repercussions.

1.1 How Data is Collected

Data providers are required to use transparent and legally compliant methods for collecting data. This includes obtaining explicit consent and maintaining clear documentation of data sources.

"GDPR encourages organizations to build security by design and privacy by design into their ethos." - Security Compass

To ensure compliance, it's crucial to verify these practices during vendor evaluations:

Requirement	Implementation Example	Verification Method
Explicit Consent	Clear opt-in forms with visible disclaimers	Review consent collection forms
Documentation	Detailed records of data sources	Audit collection processes
Opt-out Mechanisms	Easily accessible unsubscribe options	Test opt-out functionality
Identity Verification	Multi-factor authentication systems	Verify security protocols

A great example of compliance in action is Global Data Systems (GDS). They employ multiple layers of verification, such as card-key access controls and robust data security measures, to ensure their collection processes are secure.

The next step is to evaluate whether providers adhere to these legal requirements by examining their documentation and verifying their security practices.

1.2 Meeting Legal Standards

Data providers must align with major regulations like GDPR and CCPA. Under GDPR, penalties for violations can reach up to €20 million or 4% of global turnover. Meanwhile, CCPA penalties start at $2,500 per unintentional violation and rise to $7,500 for intentional non-compliance.

Here are the core legal standards to monitor:

Data Processing DocumentationProviders must keep detailed records of all data processing activities, including the purpose, scope, and legal justification for the data collection.
Consumer Rights ManagementSystems should allow consumers to access, delete, limit, or correct their data as needed.
Security ProtocolsEssential measures include:
- Data encryption
- Regular security audits
- Access control systems
- Breach notification procedures

When assessing a data provider, ensure they offer at least two ways for consumers to submit requests, such as a toll-free number and a web-based form. Additionally, confirm that they update their privacy policies regularly and provide employee training on proper data handling practices.

2. Data Security Measures

In 2022, 62% of companies adopted encryption strategies, yet 33% of data loss incidents were linked to the absence of such measures.

2.1 Security Systems

Encryption and access control systems are no longer optional - they're essential. Providers need to secure data both at rest and in motion by implementing advanced encryption protocols.

Security Component	Key Features	Verification Method
Data Encryption	AES encryption standard	Review encryption certificates
Access Controls	Two-factor authentication	Test authentication process
Key Management	Regular key rotation	Audit key management logs
Network Security	TLS protocol implementation	Verify HTTPS compliance
Independent Audits	Regular external verification	Third-party assessment reports

"Independent audits can help reassure marketers that the data they're using in their campaigns is on-target, and that using it does not present any risks, financial or reputational." - Timur Yarnall, Founder and CEO of Neutronian

Many providers uphold ISO 27001 certification and release SOC reports to showcase their compliance efforts.

2.2 Data Breach Plans

By 2025, 35.5% of breaches are expected to stem from third-party compromises. To address this growing threat, an effective breach response plan should include:

Immediate Response Protocols: Clearly define steps to detect, contain, and respond to breaches. This includes pinpointing compromised systems and activating immediate security measures.
Communication Framework: Set up clear communication channels to notify affected individuals, internal teams, legal authorities, and regulatory bodies promptly.
Recovery Procedures: Detail the process for restoring systems, recovering data, and conducting a post-incident analysis to prevent future breaches.

"Third-party audit reports are important for building trust and credibility with your customers and business partners." - Robyn Ferreira, Senior GRC Manager at Scytale

The cost of poor data quality hits U.S. businesses hard, with annual losses reaching approximately $3.1 trillion. To stay prepared, providers should regularly conduct tabletop exercises to test their breach response plans. These exercises help refine strategies based on new threats and lessons learned.

3. Legal Agreement Review

Reviewing legal agreements with data providers is essential to protect your business interests and ensure compliance with regulations.

3.1 Data Handling Terms

Data Use Agreements (DUAs) establish specific terms for how data is handled and used.

Contract Component	Required Terms	Verification Steps
Data Usage	Clear purposes and limitations	Review usage restrictions
Access Rights	Defined user authorization levels	Verify access controls
Monitoring	Annual compliance audits	Check audit procedures
Data Return	End-of-contract procedures	Confirm deletion protocols
Security	Specific protection measures	Validate security standards

The agreement should explicitly forbid:

Selling or sharing personal information beyond agreed purposes
Using data outside the scope of the business relationship
Combining personal data from multiple sources
Retaining data past the contract period

"Contract provisions should attempt to transfer whatever risk the company is not able to mitigate on its own." - Reena Bajowala, data security and privacy partner at Ice Miller

These terms create a foundation for the risk protection measures outlined in the next section.

3.2 Risk Protection Terms

Risk protection clauses safeguard against compliance breaches and data security incidents. A well-drafted agreement should include indemnification provisions and liability coverage.

Key protection measures to consider:

Indemnification CoverageThese provisions address issues like confidentiality breaches, security violations, and compliance failures. For example, the February 2017 case of highlights how vague terms can lead to costly consequences.
Liability SpecificationsThe contract should clearly define:
- Compensation terms for compliance violations
- Procedures for reimbursing investigation costs
- The scope of liability
- Damage caps and other limitations
Breach Response RequirementsProviders must commit to:
- Immediate notification of breaches
- Cooperation during investigations
- Timely remediation actions
- Coverage of legal expenses

"Indemnification provisions allow a contracting party to customize the amount of risk it is willing to undertake in each transaction and with every counterparty." - Thomson Reuters

Additionally, require providers to carry cyber liability insurance and routinely verify compliance certifications. The agreement should grant your business the authority to conduct annual compliance audits and enforce corrective actions if violations occur.

4. Regular Compliance Checks

Regular compliance checks are essential for maintaining data quality, ensuring security, and staying ahead of potential risks and regulatory updates.

4.1 Risk Review Process

An effective risk review process involves continuous monitoring of provider compliance. Combining automated tools with manual reviews ensures thorough oversight and helps organizations stay aligned with best practices.

Review Component	Frequency	Actions
Data Quality Audits	Monthly	Verify sample data and check for accuracy
Security Controls	Quarterly	Examine access logs and confirm encryption methods
Policy Compliance	Semi-annually	Update policies and align processes with regulations
Vendor Performance	Annually	Review SLAs and test incident response plans

A study by Bridgeforce in 2023 identified 70 actionable recommendations, such as improving SLAs and implementing risk-based oversight, which significantly enhanced compliance efforts.

"Compliance isn't just about meeting legal requirements; it's about protecting your business from unnecessary exposure."– Kevin Mabry, Vendor Risk Management

Key aspects of an effective risk review process include:

Automated and scheduled assessments of security measures and data handling practices
Proactive identification of potential risks before they escalate
Detailed documentation of findings and corrective actions

Regular risk reviews lay the groundwork for strong compliance practices. To further bolster these efforts, organizations should focus on updating and verifying certifications.

4.2 Certification Updates

Keeping certifications up to date is a critical step in reinforcing compliance alongside ongoing risk assessments.

The costs of non-compliance are rising. For example, in January 2025, Block Inc. was fined $80 million by regulators in 48 U.S. states due to weaknesses in its money laundering controls.

Key practices for certification monitoring include:

Certification TrackingLeverage automated tools to monitor certification expiration dates, renewals, and review schedules.
Validation ProcessPerform quarterly evaluations to ensure that current security measures meet certification standards between formal audits.
Documentation ManagementKeep all certifications, audit reports, and compliance documents updated. Use automated alerts to notify teams about upcoming renewal deadlines and necessary updates.

The frequency of certification reviews should be tailored to factors like:

Regulatory requirements specific to the industry
Company size and operational complexity
Historical compliance performance
Current risk levels
Recent security incidents or breaches

To stay ahead, organizations can adopt automated compliance monitoring tools. These tools help detect non-compliance events early and issue alerts to address problems before they escalate.

5. Responsible Data Use

Responsible data use is about more than just adhering to legal and security requirements - it's about handling information ethically to maintain consumer trust. This is especially crucial, as recent studies reveal that 47% of users have switched providers due to concerns over data privacy.

5.1 Data Use Limits

The principle of data minimization emphasizes collecting only the information that's absolutely necessary. This approach not only reduces risks but also enhances data accuracy and helps cut storage costs.

Data Use Aspect	Compliance Requirements	Verification Method
Purpose Limitation	Data used solely for declared purposes	Regular audits of data processing activities
Data Minimization	Limit collection to essential details	Review data collection forms and storage
Retention Period	Clear timelines for data deletion	Monitor automated deletion schedules
Processing Scope	Define boundaries for data usage	Assess processing activities regularly

To implement these controls effectively, organizations should:

Clearly define the purpose for data collection and usage.
Maintain detailed records of these purposes.
Automate monitoring processes for compliance.
Conduct periodic audits focused on data usage.

"Data compliance is the practice of ensuring that any organization handles data according to laws, regulations, and standards." - SentinelOne

Equally important is addressing user rights to strengthen trust in how data is managed.

5.2 User Rights Management

Managing user rights effectively requires systems that can handle data subject requests within a one-month timeframe.

Access Request Handling

Organizations need structured processes to handle user requests for accessing, modifying, or deleting their data. This includes establishing verification procedures and using systems to track responses.

Maintaining transparency in consent is essential. Companies should:

Allow users to view their current consent settings.
Provide tools to modify or withdraw data usage permissions easily.
Enable users to export their personal data when needed.

"The key is to balance transparency with caution. GDPR gives users the right to know what data you hold - but it also obliges you to protect the data of others. A solid redaction and review process, paired with the right tooling, helps you meet both goals safely." - Bogdan Pashynskyi, Legal Nodes

To protect user rights comprehensively, automated systems can be a game-changer. These systems should:

Track the status of data requests.
Automate responses wherever feasible.
Ensure adherence to regulatory timelines.

Given that the average cost of a global data breach is $4.45 million, it's vital for organizations to regularly evaluate their data practices to keep pace with evolving ethical and regulatory demands.

Conclusion: Building Trust Through Compliance

With non-compliance costs averaging $14 million, prioritizing data compliance is no longer optional - it's a necessity. Beyond the financial risks, trust is on the line. A staggering 87% of consumers say they would sever ties with organizations that fail to protect their data.

By adopting a proactive compliance strategy, as outlined in earlier sections, organizations can not only safeguard themselves but also build lasting trust with stakeholders. This involves combining technical safeguards with ethical data practices. The consequences of falling short are clear - Meta's $1.3 billion GDPR fine in 2023 and Epic Games' $520 million penalty for violating COPPA in 2022 serve as stark reminders.

Compliance Focus Area	Key Action Items	Trust Impact
Initial Evaluation	Conduct thorough vendor background checks	Ensures reliable partnerships
Ongoing Monitoring	Perform regular compliance audits	Maintains data integrity
Risk Management	Use automated compliance tracking	Prevents violations
Documentation	Maintain clear audit trails	Demonstrates accountability

These steps highlight how rigorous compliance practices directly enhance stakeholder confidence.

Privacy laws are evolving rapidly, and by 2023, 75% of the global population will have their personal data protected under such regulations. This means compliance can no longer be treated as a mere checkbox exercise - it must become a core element of business strategy.

"Carriers ultimately bear responsibility for any data security breach, regardless of whether the compromise was internal or caused by a contracted vendor." – Gain Compliance

To keep up, organizations should implement automated systems for risk response while documenting all data processing activities thoroughly. With 61% of companies reporting third-party data breaches in the past year, maintaining constant oversight is essential - not just to avoid financial loss, but to protect your organization's reputation and future.

FAQs

To meet the requirements of regulations like GDPR and CCPA, data providers must prioritize strong security measures to protect sensitive information and ensure compliance. Key practices include:

Encryption: Safeguard data both when stored and during transmission to block unauthorized access.
Access Controls: Restrict data access to only those who need it, adhering to the principle of least privilege.
Regular Security Audits: Perform routine checks to uncover vulnerabilities and confirm adherence to data protection standards.

In addition to these measures, having a well-defined incident response plan and providing employees with training on data security best practices can help minimize risks. These efforts not only protect sensitive information but also strengthen trust with clients and regulatory bodies.

What steps can businesses take to ensure their data providers comply with legal and security standards?

To make sure data providers meet legal and security standards, businesses should adopt a clear and thorough evaluation process:

Check for certifications: Look for industry-recognized certifications like SOC 2 or ISO 27001, and confirm compliance with regulations such as GDPR or HIPAA.
Examine contracts carefully: Contracts should detail how data will be handled, outline security measures, and specify accountability for compliance.
Perform routine audits: Regularly review the provider's compliance practices and security protocols to stay on top of any changes.

It's also crucial to keep communication lines open with your provider. This helps address any issues promptly and ensures ongoing transparency.

How can businesses prepare for data breaches and respond effectively while staying compliant?

To guard against potential data breaches, begin by evaluating risks to pinpoint weak spots and possible threats. Put together a specialized incident response team, assigning clear roles and responsibilities to each member. Craft a data breach response plan that outlines key steps like containment, assessment, notification, and review, while ensuring it aligns with legal obligations for reporting breaches to both affected individuals and relevant authorities.

Make it a priority to regularly train your team on data security best practices and effective breach response protocols. Continuously test and refine your response plan to keep pace with new and emerging threats. Lastly, keep detailed records of every action taken during a breach to maintain compliance and enhance your readiness for the future.

Evaluating Data Providers: Checklist For Compliance