June 12, 2010

Compliance Complexity and the Almighty Audit

Nicole Hemsoth

There are a host of issues that often get wrapped into cloud security discussions ranging from network and data security to the protection of private health and financial information, but for many, security means more than just knowing data is security, it means being able to prove it. In great detail, no less.

Growing regulation governing mounting data complicates efforts for technology to keep pace with the law, which for some industries, barriers to migration for private clouds alone can create enormous challenges. What this all boils down to is compliance and what that can be pared down to, at least on the individual enterprise level, is the notion of the much-dreaded audit.

Audits are not a particular concern for all HPC applications in the cloud, certainly, but for sectors like financial services, this concern is enough to dissuade broad adoption of any cloud model — no matter how tenuous it might be at first. Furthermore, since regulation is swift and revisions are frequent, organizations are understandably concerned about how new regulation might influence their current IT environment.

Grounded Concerns Versus Lofty IT Goals

LogLogic, a San Jose, Calif.-based company offering security and log management services, recently released a report that suggested enterprises are focused on security and compliance over new technology investments. More specifically, LogLogic discussed how financial services firms in particular are still hesitant to adopt cloud — no matter what model or approach. According to their survey, “more than 75 percent of respondents are concerned about increasing government regulation” since, shall we say “enhancement” of existing regulatory measures further complicates IT at every level for those who are under the most compliance-related scrutiny.

Although the report did not go into deep specific differences between private and public clouds, it does highlight some of the critical barriers to wider cloud adoption in industries with intense regulation considerations underpinning nearly every single element of IT. The report was based on surveys with members of some of the largest international banking giants as well as numerous investment and insurance firms. It found, not surprisingly, that security was one of the biggest concerns but wrapped up in that overarching (and valid) concern are the more specific matters of transparency.

Compliance and Security Concern Trump Cloud Investments

The financial services sector is one of the most compelling to watch because they have historically been routine early adopters of technological innovation. Throw in a network, however, and the situation changes dramatically, especially with the increasingly stringent regulations that apply to specific HPC applications in the cloud that deal with personal financial and health information, for example. However, with penalities that are stiff enough to bury companies that are not compliant, the obvious driver here is keeping pace with regulation, certainly not investing in “new” technologies and ways of handling IT that might throw them into ruin.

I talked with LogLogic’s Bill Roth and Lex Van Den Berghe about some of the more specific concerns and trends that reflect the hesitancy of the financial services sector and the word that kept cropping up was “audit.” In addition to more generalized issues about data security as a whole, concerns about audits cannot be underestimated.

As Bill Roth of LogLogic noted, “In terms of the level of security required for those in the financial services industry since they’re so heavily regulated, cloud-based providers and HPC in the cloud in general still does not have the security regimes needed to satisfy a lot of regulators.” This statement is not based exclusively on the findings of this one report; the company has carried out similar studies with similar conclusions in the life sciences as well with focus on HIPPA compliance with similar conclusions.

It All Comes Down to the Audit

While LogLogic has a direct stake in helping firms overcome auditing angst, the points Roth and Van Den Berghe makes are difficult to take issue with. When asked about what the primary concern was for those they spoke with during their study, there was no question that fear of the almighty audit and its associated fines was enough to make any enterprise think twice about sending their business into a network.

As Bill Roth notes, “At the fundamental business level it is all about audits; the survey calls out that the two most important regulatory regimes people are concerned about are Sarbanes-Oxley and PCIS for credit card processing. SOX is governmental, PCIS is industry-based — people’s biggest concern is not being audited, not getting fined.

An example of the biggest requirements (two biggest) are section 404 of SOX as well as PCI rule 10. If you go to the site, the list of regulations looks scary but it’s not that much (changing default passwords on firewall) but as rule 10 states — you have to log everything; among other things, you are required to log all state changes to your firewalls so when you have an audit, there is a clear audit trail of what went on in the case of a breach.”

Are New Regulations Taking the Cloud into Account?

There is a new version of PCI specific 1.3 is coming out for final draft June 30 that has been modified to address the cloud specifically and to tighten areas of concern about wireless networking, tokenization and cloud as an overarching concept. Tokenization, which refers to personal information being stored as a token rather than a directly-accessible tide of information, is an important issue in current debates about cloud and compliance since it means that privileged data can be stored in a more secure offsite location. Elements of that are taken into consideration to allay concerns about where data is being stored, which helps appease auditors and lawyers.

Bill Roth added to this thought by discussing the HITECH Act of 2009, which just went into effect in February and now adds stiff penalties in the form of dramatic fines and now jail time to the direct misuse and mishandling of personal information. “The effect of this has been both good and bad — laws like this have a chilling effect on the move to cloud for more conservative companies who will now look several times before they engage, but it also motivates the rest of us to do better on security and auditing frameworks and technologies to roll things out sooner — the point is, no one wants to wear an orange jumpsuit.”

It’s Not Just the Enterprise That Should Be Worried…

There is no doubt that the increase in regulation is going to affect far more than the enterprises as they make sure they are compliant. Cloud vendors are going to face mounting challenges as well as they tailor their agreements to be suitable for those businesses who have made the brave decision to put some of their operations into the public cloud in particular.

Chris Hoff, a network and information security architecture expert who currently serves as the Director of Cloud and Virtualization and Data Center Solutions at Cisco Systems stated in January, “Almost all of the cloud providers I have spoken to are being absolutely hammered by customers acting on their ‘right to audit’ clauses in contracts. This is a change in behavior. Most customers have traditionally not acted on these clauses as they used them more as contingency/insurance options. With the uncertainty relating to confidentiality, integrity and availability of cloud services, this is no more. Cloud providers continue to lament that they really, really want a standardized way of responding to these requests.”

Compliance and auditing over time could mean that the ever-so attractive cloud pricing models that have brought some on board already could start to increase as cloud vendors keep pace with the staffing and support required to contend with their end of agreements.

The ultimate question becomes to what degree will compliance alone negate the benefits of using clouds in the first place? And moreover, why should firms bother with clouds when they have much bigger metaphorical fish to fry?

For more on the regulatory environment for another sector that this is of particular importance to, the life sciences industry, check out some of the more recent posts from Bruce Maches.

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