Does your Accounting Practice have a Written Information Security Plan (WISP)?
As trusted stewards of sensitive financial information, accountants play a critical role in protecting the personal data of clients. The evolving landscape of cybersecurity threats and regulatory compliance has prompted stricter requirements, especially for those handling non-public personal information (NPI). One of the most significant regulatory frameworks governing data protection is the Gramm-Leach-Bliley Act (GLBA) and it’s Safeguards Rule which requires a Written Information Security Plan (WISP). In 2021, the Federal Trade Commission (FTC) updated the Safeguards Rule, which now mandates even more rigorous data security practices for financial institutions, including accounting firms and tax professionals. These updates went into effect in June 2023, reflecting the need for enhanced protection in an increasingly digital world. Understanding these changes is crucial not only for regulatory compliance but also for safeguarding client trust. In this article, we’ll break down the key updates to the FTC’s Safeguards Rule, explain what they mean for your practice, and offer practical steps you can take to meet these new obligations. What is the Gramm-Leach-Bliley Act? The Gramm-Leach-Bliley Act, enacted in 1999, is a federal law that regulates how financial institutions handle and protect the privacy of consumers’ personal information. Also known as the Financial Services Modernization Act, it was initially created to remove barriers between banks, securities companies, and insurance providers, allowing them to consolidate and offer a broader range of services. However, the law also includes significant privacy and security provisions to safeguard sensitive customer data. Some of the key provisions of the GLBA include the Financial Privacy Rule, which governs the collection and disclosure of consumers’ personal financial information by institutions, the Safeguards Rule, which mandates that financial institutions implement a written information security plan to protect customer data, and the Pretexting Protection provision, which is a provision protecting against obtaining personal information through false pretenses. What is the Safeguards Rule? The Gramm-Leach-Bliley Act’s Safeguards Rule is a key regulation that requires financial institutions, including accounting firms, tax preparers, and other entities handling sensitive financial information, to develop, implement, and maintain a written information security plan to protect customer data. The IRS began requiring a written information security plan as part of compliance with GBLA back in 2019. In IRS Publication 4557, the IRS provides guidance for tax professionals on protecting taxpayer data. It outlines the need for a data security plan, which includes written policies to safeguard sensitive information. This mandate was reinforced as part of the “Security Summit” initiative, a collaboration between the IRS, state tax agencies, and the private sector to combat tax-related identity theft. A written information security plan for accounting practices is a formalized, documented plan that outlines the specific policies and procedures a firm must follow to protect sensitive information, such as financial records and personal data, from unauthorized access, breaches, or theft. It is designed to ensure compliance with regulatory requirements, such as those under the GLBA or state-specific privacy laws, and to mitigate risks associated with data handling in accounting. In addition to developing their own safeguards, companies covered by the rule are responsible for taking steps to ensure that their affiliates and service providers safeguard customer information in their care as well. Who Must Comply? The Safeguards Rule applies to a wide range of financial institutions, including but not limited to: Banks and Credit Unions Mortgage Brokers Tax preparers and Accountants Credit Counselors and Investment Advisors Insurance Companies Collection Agencies Tax Preparation Firms Payday Lenders This rule is particularly relevant for any company handling non-public personal information (NPI), such as names, addresses, bank account details, credit history, or Social Security numbers. Importance of a Written Information Security Plan Having a written information security plan is crucial for accountants and financial institutions for several reasons. First and foremost, many financial professionals are legally required to have a WISP under laws like the Gramm-Leach-Bliley Act, and non-compliance can lead to penalties, fines, and legal liabilities. Moreover, accountants handle sensitive financial information, including personal identification and financial data. A WISP helps establish protocols for safeguarding this information against unauthorized access, breaches, and cyber threats. Additionally, clients expect their financial information to remain confidential and secure. Implementing a WISP demonstrates a commitment to data security, which can enhance client trust and protect the firm’s reputation. A WISP also involves conducting risk assessments and identifying vulnerabilities within the organization, enabling firms to mitigate potential risks before they lead to data breaches or financial loss. In the event of a data breach or security incident, a well-structured WISP includes an incident response plan that outlines the steps to take, helping to minimize damage and ensure quick recovery while maintaining business continuity. Furthermore, developing a written information security plan fosters a culture of security within the organization by including employee training on proper data handling practices. This training reduces the risk of human error and ensures that everyone understands their role in protecting client information. Getting Started on Your Written Information Security Plan Running a successful tax preparation business involves many key tasks, from staying up to date with tax law changes and software updates to managing and training staff. However, one crucial element often overlooked is developing a written information security plan. A WISP isn’t just a smart business practice—it’s a legal requirement. For many tax professionals, knowing how to begin creating a WISP can be challenging, but developing a security plan will help protect both your business and clients while ensuring compliance with the law. Key requirements to building a successful WISP: Designate a Security Coordinator: Each financial institution must designate one or more employees responsible for coordinating and overseeing the security program. Risk assessment: The company must identify and assess potential internal and external risks to the security, confidentiality, and integrity of customer information. This assessment should cover risks related to employee misconduct or error, system failures, and unauthorized access, including cyber threats. Design and Implement Safeguards: Based on the risk assessment, the organization must design and implement safeguards to control the identified risks. These controls include access
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