SaaS Compliance: Your Guide To Building A Fool-proof Strategy From Risk To Resilience

What is SaaS Compliance?

SaaS compliance refers to the adherence to various legal, regulatory, and industry-specific standards by Software-as-a-Service (SaaS) providers. Regulations dictate SaaS compliance globally or regionally. 

In other words, there is no such thing as one “SaaS Compliance” fits all. SaaS companies must tailor compliance frameworks to applicable laws.

Why is SaaS Compliance important? 

SaaS businesses host and process critical data using various computing technologies. We can further bifurcate this into two categories.

1. Sensitive/Confidential Data, and
2. Personal Data. 

Insecure data handling leads to non-compliance, security threats, and privacy breaches. These actions can impose huge costs on the business, including lawsuits, legal fees, contractual liabilities, and increased insurance premiums.

Equifax’s failure to patch a known software vulnerability stemming from software sprawl resulted in a massive data breach that cost the company up to $700 million in legal fines. This demonstrates how non-compliance with basic security practices can lead to substantial reputational damage and legal liabilities.

A robust framework minimizes SaaS compliance risks.

In addition, a robust compliance framework demonstrates a level of commitment to privacy and security of data which creates a relationship of trust between the SaaS provider and end user.

Risk management and auditing for SaaS compliance auditing

Every SaaS business should have a risk management procedure in place. Risk management is a systematic process to identify, assess, and control threats.

An ideal risk management procedure should cover the following: 

1. Risk identification: This entails identifying key protected assets of a SaaS business. This includes but is not limited to hardware, software, paper, premises, people, etc. 
2. Risk assessment: Once assets have been properly identified, you must assess the risk threshold of each asset owned or operated by the business.
3. Risk mitigation: Once the risk threshold has been determined, the organization must evaluate what measures need to be in place to minimize the risk. 
4. Monitoring and review: Continuous monitoring and review of your risk management procedure guarantees that threats do not adversely impact the business. 

Creating a SaaS compliance framework

When creating a compliance framework, an organization must use their risk management procedure as a starting point. During the risk identification process, it will be apparent that certain assets are internal while others are external. 

Internal compliance covers company-specific data like financials and employee information. External compliance, on the other hand, relates to assets or information extending beyond the organization such as customer data, personal information of customer and end users and/or any third party communications. 

Once you make this distinction, you can more easily implement the legal and regulatory standards that apply to the protection of these assets.

Legal and regulatory considerations for SaaS Compliance

There are numerous laws that fall under the ambit of SaaS compliance. This article focuses on data privacy and security for SaaS compliance.

Before we delve into the legal landscape, it is important to understand the difference between privacy and security. Data privacy is a legal right provided to an individual that guarantees that their personal information shall remain private. In other words, privacy laws of each state protect the individuals’ right to privacy. 

Data security, while highly important, is not a legal right. Here, regulatory standards govern data security and enable an organization to commit to its customers that their data will remain secure in the SaaS provider’s environment.

Below is a summary of key laws and regulations that must be a part of a SaaS compliance framework: 

1. Data Privacy Frameworks (US & EU)

Data Privacy laws have been enacted across the globe with every country having its own data protection law. Organizations must follow all applicable domestic and foreign laws.

It is important to note that the residence of the individual determines which privacy law shall apply. Being up to date on global privacy laws is a need for any SaaS business in order to remain compliant. 

Here are a few notable data privacy laws you must consider.

General Data Protection Regulation (GDPR)

The GDPR aims to enhance individuals’ control over their personal data and harmonize data protection laws across the EU; it is a landmark data privacy regulation. It requires organizations to obtain clear and explicit consent for data processing, implement robust data protection measures, and report data breaches promptly. Businesses must demonstrate compliance through detailed documentation, regular audits, and adherence to principles such as transparency, accountability, and purpose limitation. Non-compliance can result in substantial fines.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA is a foundational U.S. law that protects the privacy and security of individuals’ medical information. It applies to healthcare providers, insurers, and their business associates, including technology companies handling protected health information (PHI). Key provisions include the Privacy Rule, ensuring the confidentiality of patient data; the Security Rule, mandating safeguards against data breaches; and the Breach Notification Rule, requiring timely reporting of data breaches. HIPAA also outlines penalties for non-compliance and promotes the adoption of secure digital health solutions.

California Consumer Protection Act & California Privacy Rights Act (CCPA & CPRA)

The CCPA and its successor, the CPRA, are comprehensive privacy laws that grant California residents rights over their personal data. Regulations grant individuals the right to know what data is collected, request its deletion, and opt out of its sale. The CPRA builds on the CCPA by adding new protections for sensitive personal information, such as health and financial data, and establishing the California Privacy Protection Agency (CPPA) to enforce compliance. Businesses must provide transparent privacy notices and honor consumer requests promptly.

2. Data Security Standards

Tech companies follow a varying number of different security standards. Depending on the industry of a SaaS provider, some standards may or may not apply. 

Having a dedicated Information Security team that can assess which security standards are required for the business will help in minimizing costs associated with security. In addition, there are a few security laws that a SaaS provider must comply with, especially if they are involved in hosting data of the US federal government or related entities. 

The following are a few of the major security regulations that a SaaS provider should consider for compliance purposes.

System and Organizational Controls 2 (SOC 2)

SOC 2 is a widely recognized standard for managing customer data securely. It focuses on five trust service principles: Security, availability, processing integrity, confidentiality, and privacy. SOC 2 compliance demonstrates a company’s commitment to protecting sensitive information, particularly in cloud-based environments. Audits assess an organization’s ability to safeguard data and maintain operational resilience. Achieving SOC 2 certification builds trust with customers and partners, ensuring that their data is handled with care and professionalism.

ISO/IEC 27001

ISO/IEC 27001 is an internationally recognized standard for establishing, implementing, and maintaining an Information Security Management System (ISMS). It provides a structured framework for identifying and mitigating risks to sensitive information, ensuring its confidentiality, integrity, and availability. Organizations achieving ISO 27001 certification demonstrate their commitment to security best practices, including regular audits, incident management, and continuous improvement of security measures.

Payment Card Industry Data Security Standard (PCI DSS)

PCI DSS establishes stringent requirements for securing credit card transactions to protect cardholder data from fraud and breaches. It applies to all entities that accept, process, store, or transmit payment card information. The standard includes requirements for encryption, network security, access controls, and regular vulnerability assessments. Compliance not only protects customer trust but also helps organizations avoid financial penalties and reputational damage in the event of a data breach.

Federal Information Security Modernization Act (FISMA)

FISMA is a U.S. federal law requiring government agencies and contractors to develop comprehensive security programs for their information systems. It aligns with the NIST Cybersecurity Framework to establish robust policies, procedures, and controls to protect federal data. Organizations must conduct risk assessments, implement appropriate safeguards, and report on their compliance regularly. FISMA compliance is critical for companies working with federal agencies to maintain the integrity of national security systems.

National Institute of Standards and Technology (NIST) Cybersecurity Framework

The NIST Cybersecurity Framework is a voluntary guide developed by the U.S. National Institute of Standards and Technology to help organizations manage and reduce cybersecurity risks. It consists of five core functions—Identify, Protect, Detect, Respond, and Recover—providing a structured approach to enhance cybersecurity resilience. Widely adopted across industries, the framework promotes best practices for identifying vulnerabilities, implementing controls, and ensuring continuous monitoring and improvement.

3. Artificial Intelligence (AI) Regulations

With the ever-growing rise of AI, SaaS providers are bound to either integrate or develop their own AI systems in order to be competitive in the market. However, with the use of AI, SaaS providers must ensure that they are well versed on the regulatory landscape of AI and as a result are well equipped to comply with the requisite requirements. 

Here are a few AI laws that are worth adding to a SaaS compliance framework: 

• EU AI Act: The EU AI Act aims to establish a comprehensive framework for AI systems in the European Union, focusing on safety, transparency, and accountability. It categorizes AI applications by risk level—ranging from minimal to high-risk—and imposes strict requirements on high-risk systems, such as robust testing, transparency, and data governance. This regulation promotes the ethical use of AI while fostering innovation.
• California AI Transparency Act: California AI Transparency Act mandates that providers of generative AI systems make available tools to detect AI-generated content, and that they provide for disclosures within that content.
• California Generative Artificial Intelligence Law: This new law requires GAI developers to publish information about the datasets used to develop and train their Generative AI Systems.
• Colorado AI Act: The Colorado AI Act focuses on regulating both the development and deployment of high-risk AI systems to prevent “Algorithmic Discrimination”.This refers to unjustified differential treatment that automated systems may have on individuals based on protected characteristics such as race, color, ethnicity etc, which are typically covered under anti-discrimination laws.

5 things SaaS companies should do for ensuring SaaS Compliance

1. Remain up to date: Create and maintain an internal knowledge repository of all applicable legal and regulatory requirements applicable to the business. Ensure that your Legal and Infosec teams are well informed and equipped with understanding how these laws apply to the business. 
2. Review legal documentation: Update all customer-facing contractual language such as Terms of Service, Privacy Policy, EULA, Data Processing Addendums, etc. Draft internal policies that can demonstrate commitment toward complying with legal and regulatory standards.
3. Conduct training: Provide company-wide awareness on key compliance efforts (e.g. data privacy and security).
4. Automate: As processes increase, automation is the need of the hour. Ensure that your workforce is not bogged down by compliance efforts and empower them to use automation tools to optimize productivity.
5. Internally audit processes: Audit your internal systems and processes to ensure that everyone in the organization from lower level staff to upper management are on the same page with regards to SaaS compliance efforts. For starters, you can provide your IT teams with the right tools that give complete visibility into your entire IT infrastructure, including hardware and software assets, in real-time.

Checklist for internal IT Managers/CIOs to ensure SaaS Compliance

• Data classification: Ensure that your IT/Infosec teams classify sensitive data and are aware of how to handle such data in accordance with applicable laws and regulations.
• Access control: IT teams should devise a proper access provisioning procedure, whereby an IT manager can review and grant access to specific individuals using the principle of least privilege and only on a need-to-know basis.A good access control procedure will detail which hardware and software employees of the organization use.
• Draft and implement security policies: Create security policies and procedures, including incident response, business continuity and disaster recovery, data retention and disposal, etc. Draft the policies clearly and concisely so cross-functional teams can easily understand them.
• Security tools: To ensure your team immediately identifies and mitigates security threats/attacks, you must continuously monitor security systems.Examples of security tools include SIEM solutions, IDS/IPS, Web Application Firewalls, etc. 
• Regular security audits: Your Infosec teams should conduct internal audits at least biannually, as recommended by regulatory security standards. They should use these internal audits to improve and enhance already existing processes and procedures.

Challenges and future of SaaS Compliance

As technology evolves and develops, lawmakers/governments will enact new laws and regulations to regulate the flow of data and information. As laws increase in volume and complexity, the challenge remains for SaaS providers to be up to date with these ever growing regulations. 

SaaS compliance is moving towards a future defined by proactive strategies. Continuous monitoring through AI automation, standardized frameworks for new technologies such as generative AI, and a strong emphasis on risk management will be essential. 

Successful providers will build robust compliance programs that not only meet current needs but also anticipate future regulations, thereby ensuring security and fostering customer trust in the growing digital ecosystem.

SaaS compliance is not merely a checkbox activity, but a fundamental pillar of building trust and ensuring long-term success in the cloud-driven landscape. By proactively addressing regulatory requirements, implementing robust security measures, and prioritizing data privacy, SaaS providers can not only mitigate risks but also foster a secure and reliable environment for their customers. 

As the regulatory landscape continues to evolve and data sensitivities increase, embracing a culture of continuous compliance will be paramount for any SaaS company seeking to thrive in the years to come.