It has never been easier to conduct business across continents than it is today. Yet, this freedom brings growing legal responsibilities, especially when it comes to how personal data is stored, processed, and shared.
For organizations involved in mergers and acquisitions (M&As), joint ventures, and capital raising activities, the use of virtual data rooms (VDRs) has become essential for secure document exchange. However, stringent regulations such as the General Data Protection Regulation (GDPR) in much of Europe, the California Consumer Privacy Act (CCPA) in the US, and similar laws in other countries now mean data security in M&A data rooms is more important than ever.
In this post, we’ll explore how to manage global compliance effectively when using a virtual data room (VDR). We’ll also review some of the core regulatory requirements to be aware of and best practices that can help you stay compliant and avoid unnecessary legal complications.
VDRs are built to support secure transactions. Much of the data shared in VDRs does not concern “natural people,” whose data is protected under data protection laws. However, these two facts do not guarantee that VDRs comply with all data protection laws. Each business needs to take proactive steps to stay on the right side of the law and maintain customer confidence.
Grave Implications of Non-Compliance
A single oversight, such as a failure to redact personally identifiable data or misconfiguring access permissions, could result in legal exposure, data breaches, and delayed deals. In 2023, Meta was hit with a massive $1.3 billion fine for cross-border data transfer breaches. It’s vital to ensure your business isn’t the next to make the headlines.
Compliant at Home and Abroad
Whether you’re handling customer data, employee records, or financials, your M&A data room must comply with data protection laws–and not just in your home state or country. It must also comply with relevant laws where it is accessed. As the Meta example above highlights, regulators are increasingly interested in cross-border data flows. So it’s vital to ensure you are compliant from the outset.
Best Practices for Global Compliance in an M&A Data Room
Your VDR can help you comply with global data privacy laws, but there are several steps every business must take to proactively ensure compliance. The following steps can help you ensure your M&A data room is compliant as soon as it goes live.
Step 1: Review Relevant Regulations
The first step is to get familiar with what data protection laws require of businesses. Each regulation has its own requirements, but most share the following commonalities:
- Overarching principle: To safeguard the privacy of individuals (data subjects) by ensuring their personal data is only used for the purpose for which it was collected, or another purpose authorized by the individual.
- Rights over personal data: Data protection regulations often give people the right to access, correct, erase, transfer, and opt-in/opt-out of their data being used for particular purposes.
- Data security: Data controllers (the individual or business processing the personal data) must keep it secure and create audit logs that the data subject can ask to view.
New data privacy laws are emerging continuously, and your business must keep up to date to ensure it remains compliant.
Step 2: Carry Out a Data Audit
Data protection must be the guiding principle as you gather documents in your VDR. To facilitate this, conduct a data audit, identifying and classifying all the data your business stores and processes. You must also analyze why the data was collected, so you can ensure you are processing it in line with your privacy policy and in a way the user has consented to (explicit consent is a requirement of some, but not all, data protection laws.)
This will help you identify data that is affected by data privacy regulations and can guide the measures you take to ensure your VDR is compliant.
Step 3: Implementing Security Measures
Data protection laws require businesses to store data securely and only permit access to those authorized to use it. Data protection measures to take in your M&A data room may include:
- Multi Factor authentication (MFA)
- ISO 27001-compliant servers
- Data encryption in storage and transit
Caplinked’s virtual data rooms’ digital management system gives you precise control over who sees your documents. You can prevent sharing, editing, printing, and copying, and even revoke access when files have been downloaded. Using a VDR with bank-grade security and stringent access controls demonstrates your commitment to compliance to regulators, investors, and other partners.
Another critical safety measure is ensuring all parties accessing the VDR are aware of their data handling responsibilities. Consider embedding terms of access in your login procedures or having parties with access sign non-disclosure agreements (NDAs).
Step 4: Audit Logs and Watermarking
VDRs maintain detailed audit logs that track user activities, including who accessed which document when and what they did with it. This allows your business to proactively monitor compliance and detect suspicious activity.
Watermarking – applying a digital watermark with the user’s name, email address, IP address, and a timestamp – helps prevent unauthorized sharing and distribution of personal data.
Step 5: In-House Policies and Training
Every business should establish a policy that outlines how data is handled in accordance with data privacy regulations. This should include:
- Access
- Processing – including what can and can’t be done
- Storage
- Erasure
It should also outline how your company will respond to a data breach. Continuous staff training on how to implement your data handling policy in the context of your VDR is essential to ensure no one starts taking shortcuts that could prove costly.
Why Caplinked Is Your All-In-One Compliance Solution
If you’re looking for an M&A data room that makes data privacy compliance a breeze, Caplinked is the answer. Our commitment to data security is one of the main reasons why we’re trusted by nearly half of all Fortune 1000 companies across more than 75 countries.
Our industry-leading data security, seamless permission management, and activity monitoring help ensure your data stays secure and your deal moves smoothly toward completion.
Discover the benefits of Caplinked for yourself with a 14-day free trial.
