SOC 2 Compliance: Understanding the Standard for Data Security

Phillip Shoemaker
September 27, 2024

Table of Contents

Key Takeaways:

  • SOC 2 (System and Organization Controls 2) compliance is a set of standards designed to manage how organizations handle sensitive data.
  • It is particularly important for technology and cloud-based companies that store or process customer information.
  • SOC 2 compliance helps optimize internal processes and ensures that systems operate efficiently, reducing errors and improving service reliability.

 

As we approach 2025, data protection has evolved from a mere topic of discussion into a thriving industry, driven by the rise in internet-based crimes. With many business operations relying heavily on the internet, data is constantly transmitted globally, and software and cloud services have streamlined company processes. However, alongside these conveniences comes a growing threat—data mishandling has led to attacks on various organizations, resulting in identity theft, malware installation, online blackmail, and extortion

Have you asked your third-party service providers or network providers how they protect data during and after transmission? Can you determine if these vendors adequately safeguard your information? More importantly, if you are the vendor in question, how can you prove to customers that their data is secure with you? The answer lies in SOC 2 compliance.

What Is SOC 2?

SOC 2 (System and Organization Controls 2) compliance is a set of standards designed to manage how organizations handle sensitive data. Unlike more stringent security frameworks like PCI DSS, SOC 2 is often regarded as a non-financial reporting framework, focusing primarily on evaluating a service provider’s adherence to its own declared practices and standards. This ensures the security, integrity, and privacy of an organization’s data.

This framework plays a crucial role in building customer confidence by demonstrating a service provider’s commitment to preventing data breaches, unauthorized access, and other security threats. As a result, many businesses, particularly in the B2B and SaaS sectors, require SOC 2 compliance reports before entering into contractual agreements, making it a key standard for organizations handling sensitive customer data.

What Is the Core Criteria of SOC 2 Compliance?

SOC 2 is a flexible yet essential data security framework tailored for B2B and SaaS companies, with a focus on safeguarding data. Governed by the American Institute of Certified Public Accountants (AICPA), SOC 2 compliance revolves around five core criteria for managing client data: Security, Privacy, Confidentiality, Processing Integrity, and Availability.

These criteria, known as “Trust Service Principles,” form the foundation of SOC 2 compliance. Security is the mandatory baseline, assessed in every SOC 2 report, while the inclusion of the other four criteria depends on industry standards, client needs, and specific organizational requirements. The adaptable nature of SOC 2 allows each report to be uniquely tailored to a company’s specific needs and maturity level. Businesses design their own controls, and the resulting reports provide key insights into their data management practices, offering valuable information to current and potential clients.

5 Key Trust Service Principles of SOC 2 Compliance

Here are the five key Trust Service Principles that form the basis of SOC 2 compliance:

  1. Security: This core principle focuses on safeguarding systems and data from unauthorized access, both physical and digital. Organizations implement measures such as firewalls, encryption, multi-factor authentication, and intrusion detection systems to prevent data breaches and protect sensitive information.
  2. Availability: Availability ensures that systems remain operational and accessible as outlined in service level agreements (SLAs). This principle emphasizes maintaining system uptime and reliability by addressing performance issues and implementing disaster recovery plans and backups to keep systems available when needed.
  3. Processing Integrity: This principle ensures that systems perform their functions accurately, completely, and in a timely manner. It verifies that data is processed correctly, ensuring the validity of transactions, records, and data transfers without errors or unauthorized alterations.
  4. Confidentiality: Confidentiality relates to the protection of sensitive information, such as financial data or intellectual property, from unauthorized disclosure. Organizations must use access controls, encryption, and other security protocols to ensure that confidential data is only accessible to authorized individuals.
  5. Privacy: The privacy principle governs the proper collection, use, retention, and disposal of personal information (PII). Organizations must ensure that customer data is handled in accordance with privacy laws and regulations, such as GDPR or CCPA. This includes obtaining consent for data use, safeguarding personal information, and preventing unauthorized access.

What Is the Difference Between SOC 1 and SOC 2?

SOC 1 focuses on financial reporting controls, while SOC 2 emphasizes the security and privacy of customer data. SOC 1 is specifically designed for financial institutions and services that impact financial reporting, ensuring the accuracy and reliability of financial data. On the other hand, SOC 2 applies to cloud computing and technology companies. It focuses on safeguarding data through controls related to security, availability, processing integrity, confidentiality, and privacy. SOC 2 addresses broader data protection needs, beyond financial reporting, across various industries.

Essential Security Measures for Achieving SOC 2 Compliance

Achieving SOC 2 compliance is vital for any service provider handling customer data in the cloud. It has become a critical requirement for most SaaS and B2B companies. Before 2014, SOC 1 was the primary standard, but with advancements in cloud technology and rising threats to user information, SOC 2 has emerged as the preferred standard to safeguard user data and mitigate risk.

Below are four crucial security measures necessary for SOC 2 compliance:

1. Monitoring The Known & The Unknown

SOC 2 compliance requires continuous oversight of an organization’s operations, including both known and unknown variables. This involves tracking unusual system activities, configurations, and user access. Authorized access represents the known, while unauthorized access constitutes the unknown. Monitoring these variables, particularly in cloud environments, helps detect any deviations and prevents malicious activities from compromising data.

2. Anomaly Alerts

To comply with SOC 2, service providers must implement alerting systems to detect unauthorized access or activities. These alerts should flag:

  • Unauthorized modifications or exposures of data and controls.
  • Suspicious file transfers.
  • Unauthorized access to privileged systems or login credentials.

SaaS and B2B companies must establish clear indicators that trigger alerts, allowing for rapid identification and response to potential threats within their cloud infrastructure.

3. Detailed Audit Trails

Audit trails are key to understanding security incidents, providing detailed records of “who, what, when, where, and how.” These insights allow organizations to quickly trace the root cause of an attack and respond effectively, making them essential for SOC 2 compliance.

4. Actionable Forensics

SOC 2 compliance extends beyond detecting suspicious activities—it requires proactive measures to neutralize threats. Forensics should include identifying the origin of the attack, tracing its path through the system, understanding the affected components, and predicting future threats to ensure full protection of customer data.

Why Is SOC 2 Compliance Important?

SOC 2 compliance is crucial for ensuring data security and privacy, even though it’s not a mandatory requirement like PCI DSS or KYC. Many companies now view SOC 2 compliance as essential when choosing a cloud-based service provider. Here’s why SOC 2 compliance matters:

  • Competitive Advantage: A SOC 2 report demonstrates your commitment to data security, providing a competitive edge and making it easier to gain client trust and acquire new customers.
  • Avoidance of Data Breach Fines: While the cost of achieving SOC 2 compliance may be significant, it’s far less than the potential financial penalties associated with data breaches, which can reach millions of dollars.
  • Regulatory Compliance: SOC 2 compliance helps organizations align with other data security standards such as HIPAA and ISO 27001, making it easier to meet broader regulatory requirements.
  • Organizational Benefits: Beyond client reassurance, SOC 2 compliance provides valuable insights into your organization’s risk management, internal controls, governance, and regulatory oversight.
  • Peace of Mind: Having SOC 2 compliance ensures that your systems and networks are secure, offering both you and your clients confidence and peace of mind regarding data protection.

How Does the SOC 2 Audit Process Work?

The SOC 2 audit is conducted by an independent third-party auditor and typically spans six to twelve months. However, expedited “Type I reports” can be completed in as little as three months. The purpose of the audit is to ensure that a company’s data security practices meet SOC 2 standards, providing assurance to clients and partners. Here’s a breakdown of the SOC 2 audit process:

1. Preparation Phase:

  • Define the audit scope and objectives.
  • Document policies, procedures, and security controls.
  • Perform a readiness assessment to identify gaps in compliance.

2. Execution Phase:

  • Review the SOC 2 scope in detail.
  • Develop a project plan outlining the audit steps.
  • Test security controls to ensure operational effectiveness.
  • Document findings and produce a final SOC 2 compliance report.

What Are the Two Types of SOC 2 Reports?

SOC 2 evaluations are conducted annually, with reports valid for a period of twelve months. There are two primary types of SOC 2 reports, each serving a different purpose based on the business’s needs:

1. Type I

A Type I report assesses the design of a company’s internal controls at a specific point in time. Auditors evaluate whether these controls are suitable for protecting client data and adhering to trust principles, such as security and confidentiality.

2. Type II

Type II report builds on the Type I report by examining the operational effectiveness of those controls over a minimum period of six months. Auditors monitor how the controls are implemented and assess their effectiveness over time, offering more comprehensive insights into the organization’s practices.

The key difference between Type I and Type II reports lies in the audit duration. Type I reports provide a snapshot of controls at a specific moment, while Type II reports offer a long-term evaluation of control effectiveness, delivering greater assurance. For businesses looking to demonstrate consistent data security measures, Type II is usually preferred. It reassures clients of a company’s ongoing commitment to data protection. For newer companies, a Type I report can be an initial step toward building a strong internal control program. However, businesses can also directly pursue a Type II report without first obtaining a Type I report.

Identity.com

SOC 2 is a flexible reporting framework that properly handles clients’ data or information. Every service provider in the Identity.com ecosystem is SOC 2 compliant to ensure the safety and security of our users’ data. Identity.com is an open-source ecosystem providing access to on-chain and secure identity verification. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. For more info, please refer to our docs.

Related Posts

Join the Identity Community

Download our App

User-Centric Digital Identity

contact@identity.com

Linkedin-in
Company
Our Technology

Terms & Conditions

Privacy Policy

© 2025 Identity. All Rights Reversed.