There is, of course, light at the end of this fraud tunnel for banks. It involves working smarter rather than harder. 

The first step in working smart is to heed the Reserve Bank of India. 

India’s banking regulator in an analysis of the vintage of frauds reported in FY23 and FY24 found that there is a significant lag between the date on which the fraud occurs and the date on which the bank’s radars detect it. 

This “lag” is the window that banks can capitalise on. It can be used to decisively stamp out a bad-faith actor within the bank’s ecosystem.

How can banks pull this off?

The moment, a suspicious transaction is red-flagged, banks can go the extra mile and deploy automated guardrails. These guardrails can stop the criminal elements in their tracks, and greenlight the good guys.

However, for this, banks need to step up and strengthen their fraud detection capabilities. 

Evolution of banking frauds

Over the decade, banking frauds have witnessed a rapid and drastic evolution. The MO now is far more digitally sophisticated. The fraud is also strategically layered under a complex stash of seemingly innocent transactions. 

No matter how precisely and carefully the con is crafted, it does, thanks to the digital medium, leave behind a trail of fraudulent breadcrumbs, or fraudcrumbs.  

Fraudcrumbs are small, seemingly insignificant indicators of fraudulent activity that may appear across a borrower’s history or during specific transactions. These are early warning signs that, when pieced together, reveal a larger pattern of fraud.

Smart banking solutions can strengthen the fraudcrumb radar, and proactively prevent them before they become a full-blown, god-awful mess.

A basket of fraudcrumbs

Fraudcrumbs are a-plenty. And, unfortunately, so commonplace that one might almost be forgiven for not noticing them in the first place. However, therein lies the problem. Far too many banks end up greenlighting fraudcrumbs or treating them lightly. This, of course, is music to the fraudster’s ears: It is as loud and clear a signal as can be that a smooth getaway —after pulling off the con — is quite within reach. 

Here is a list of common but oh-so-fatal fraudcrumbs:

• Inconsistencies in KYC documents: So many frauds could have been prevented if only KYC compliances were executed diligently and without any procedural compromise. Unfortunately, field-level officers often play fast and loose with these strict guidelines leading to avoidable scams. There are so many instances where borrowers provide a false Aadhar and/or fake PAN card, and eventually run away with the loan amount. 
• Red flags in financial statements: This one is a common feature in many middling SME and MSME banking scams. The entrepreneur builds up heavy sales volumes for his company by transacting with a bunch of dummy firms. Heavy sales volumes and a swelling top line nudges banking officers into believing that the firm’s business is thriving and the order pipeline is healthy, when it is anything but. A recent example is that of Mandhana Industries, a bank fraud case amounting to ₹975 crore, where the bank’s director and other family members find themselves under the Enforcement Directorate’s glare.
• Multiple loan applications: Shady borrowers know the ins and outs of the banking system. Loan stacking involves one borrower filing multiple loan applications. It is legal when a borrower does it to assess which bank can offer the best rate. This is known as credit shopping. However, it quickly moves into illegal territory, when the borrower makes multiple applications and raises loans from different banks, with no intention of repayment. In a day and age of instant credit, loan stacking has become an epidemic.
• Unusual employment history: This one is self-explanatory. Suspect borrowers have an erratic employment trajectory. Their resume (if there is one) is punctuated by long spells of unemployment or employment with unverifiable workplaces. Forged experience certificates are also commonly seen.
• Behavioural patterns: Sociopathic and psychopathy tendencies recurrently show up in the professional and personal histories of criminals. There is a thrill to the crime, the prospect of getting away with it, of fooling people at large that the con man finds so irresistible. More often than not, suspect borrowers have a criminal background.

The pain points for banks?

A fraudster has no bigger ally than the lax due diligence systems of a bank. The looser they are, the better it is for the con man. Sadly, fraud detection systems as they exist currently are, by and large, ineffective. 

Reliance on several of these gate checks has delivered dismal results. 

Manual oversight: Over the years, this aspect has shown itself to be, immensely, susceptible to manipulation. Human resources often fail to catch subtle fraudcrumbs concealed in large data sets. What’s more, biases and prejudices are naturally baked into human reasoning. Con men know how to game them, and win over the trust of unsuspecting bank officials.

Siloed systems: The bigger our systems, the greater the need for them to communicate with each other. However, inter-departmental communication puts additional pressure on the existing banking digital infrastructure, not to mention the capex spending required for modernising such systems. Consequently, many banks shy away from making the tough choice and continue operating with decades-old technology, where different compartments don’t exchange data. This means that one arm of the bank is in the dark about what the other arm is doing, amplifying the bank’s vulnerabilities.

Absence of real-time monitoring: With real-time monitoring, the scales could tilt in banks’ favour. However, lacking these tools, banks stay behind the curve even as fraudulent transactions are executed repeatedly.

How can banks up their game?

Fraud detection and prevention is a complex operation with many moving and changing parts. Solutions addressing fraud detection are equally complex, akin to jigsaw pieces, which work only if they fit together seamlessly. 

Some of the best practices in the banking ecosystem involve:

• Upgrading fraud detection systems: This solution concerns itself with upgrading behavioural analytics, which primarily focuses on customer behaviour. This involves monitoring the devices from which the customer accesses digital banking, and from where. Any deviation from the regular devices, location or transaction amount can be flagged and verified by the customer.
• Bank statement analyzer: A bank statement analyzer is an analytic tool that absorbs large amounts of data and delivers instant insights about the health of a business. Immensely useful during due diligence and underwriting, it also spotlights the creditworthiness of the business and flags off fraudulent backgrounds or transactions.
• Document tampering check: Of late, there has been a massive surge in forgeries in salary certificates, bank statements, bank reconciliation statements, and more. What’s distressing is that video and document editing tools are frequently being used to fool bankers. New-age detection tools can flag off these forgeries while conducting granular checks on 20 parameters including fonts, formats, and pixel density.
• MSME verification: Legally speaking, MSME is a large label that includes all kinds of organisations under its ambit, ranging from micro, and small to medium enterprises. A banker should ideally be able to pick out the right candidate for business credit. Handsome discounts, easy loan accessibility and government support all await the well-oiled MSME but the catch here is that shady MSMEs can also dress their financials and fool bankers. This is where MSME verification tools come in handy.

MSME verification tools separate the wheat from the chaff by running a battery of tests on the firm’s financials. Other filters like PAN checks, GST verification, Udyam verification, court record checks, MCA verification, import-export verification, EPFO checks, CIBIL checks and more are also conducted.

• Enhanced due diligence: It involves employing machine learning to deduce recurrent patterns in large data sets. Deployed intelligently, this tool can be used against fraudsters and in identifying high-quality value-adding customers.
• Cross-department collaboration: As the name suggests, greater communication and information flow between departments can help boost fraud detection capabilities.
• Real-time monitoring: No defence like a strong offence. Imagine a con man receiving a call in real time asking him to verify a transaction or authenticate his KYC documents. Prevention is better than cure.
• Cross-referencing multiple data streams: Bank documents, KYC documents, salary certificates, professional trajectories, property papers, ownership documents: Banks hold a minefield of informational strands that are usually left static, instead of being cross-referenced to create a dynamic profile of the customer. Referencing across documents and data points can enrich customer profiles segregating great borrowers from the good ones, and the good ones from the bad. The database benefits further as the bad ones are further separated from the criminals.
• Automated red flagging: Any banking transaction or volume that runs contrary to the customer’s profile is red-flagged, and authentication is demanded for the same. Verification failure leads to the transaction being junked. In the best-case scenario, the transaction cancellation prevents fraud from occurring, and in the worst-case scenario, it is deemed to be a minor inconvenience by the customer.

IDfy’s bank offerings bunch together best-in-class solutions for your bank. Our offerings leverage AI capabilities and machine learning models — powered by big data analytics — to spotlight transactions that match recurrent fraudulent patterns. They can also be seamlessly integrated into the bank’s technological framework, empowering the bank with real-time monitoring.

To know more about our offerings, write to us at shivani@idfy.com.

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The Digital Personal Data Protection Act (DPDP Act), was passed to safeguard the personal data of individuals while promoting transparency and accountability among data processors and fiduciaries. As businesses and organizations increasingly depend on digital infrastructure to process and store vast amounts of personal data, the establishment of a regulatory body to oversee these processes becomes crucial.

In this blog, we will explore the role and structure of the Data Protection Board under the DPDP Act, along with its mandates, responsibilities, and enforcement mechanisms. Additionally, we will delve into the frequently asked questions (FAQs) that many individuals and organizations might have concerning the DPDP Act and its implications.

Understanding the DPDP Act

The DPDP Act, passed by the Indian government, represents a monumental shift in the landscape of data protection and privacy in India. The Act provides a legal framework for the processing of personal data, focusing on consent-based data processing, individual rights, data fiduciary obligations, and penalties for non-compliance.

The DPDP Act emphasizes:

1. Rights of Data Principals: Individuals, referred to as Data Principals, have enhanced rights such as the right to access, correct, and delete their personal data, and the right to withdraw consent at any time. Say goodbye to those pesky unsolicited tele-callers with these new rights!
2. Obligations of Data Fiduciaries: Organizations that process personal data, referred to as Data Fiduciaries, are mandated to ensure the protection, transparency, and lawful use of data. Privacy-considerations will forever change the way enterprises do business.
3. Data Protection Board (DPB): To oversee compliance, the Act mandates the establishment of the Data Protection Board, which has significant powers to investigate complaints, enforce regulations, and impose penalties. Here comes data justice!

The Data Protection Board: Role and Responsibilities

The Data Protection Board is entrusted with enforcing the provisions of the DPDP Act.

You may be tempted to think it is largely a grievance redressal organization. But it is much more. 

 Its primary role is to ensure that data processing activities, whether carried out by government bodies, corporations, or other organizations, adhere to the principles of transparency, accountability, and fairness.

Key Responsibilities of the Data Protection Board 

1. Oversight of Data Fiduciaries: The Data Protection Board monitors compliance with the obligations set out in the DPDP Act, ensuring that Data Fiduciaries handle personal data responsibly. The DPB can also tell businesses to make changes in their current procedures to ensure that no more data privacy violations occur. 
2. Handling Data Principal Complaints: If an individual believes their data rights have been violated, they can file a complaint with the Data Protection Board, who will investigate the matter. The DPB can 
3. Enforcement and Penalties: The Data Protection Board has the authority to impose penalties for non-compliance with the DPDP Act. Depending on the severity of the breach, penalties can be significant, thus incentivizing organizations to adhere to the guidelines.
4. Promoting Awareness: The Data Protection Board is also responsible for promoting awareness about data protection rights among the general public, ensuring that individuals understand how their data is used and processed.
5. Collaboration with Sectoral Regulators: The DPDP Act acknowledges that specific industries, such as finance and healthcare, may have unique data protection needs. The Data Protection Board will collaborate with sectoral regulators like the RBI (Reserve Bank of India) and SEBI (Securities and Exchange Board of India) to ensure a comprehensive approach to data privacy.

Powers of the Data Protection Board

• Investigation: The DPB can launch investigations into organizations suspected of non-compliance with the DPDP Act.
• Penalty Imposition: Upon finding non-compliance, the DPB can levy penalties that may go up to several crores (upto 250 per violation) depending on the breach’s gravity.
• Issuing Directions: The Board can issue directions to data fiduciaries and processors to rectify their data handling processes to align with legal requirements.

Composition of the Data Protection Board 

The DPB is composed of professionals with expertise in the fields of law, technology, and data governance. The board members are appointed by the central government, ensuring that they are equipped to handle complex data protection issues.

Implications of the DPDP Act for Businesses

The DPDP Act, and by extension, the DPB, places significant obligations on businesses operating in India or dealing with the data of Indian citizens. Some key areas where businesses will need to adapt include:

1. Consent Management: Businesses must implement robust consent management systems, ensuring that individuals give clear and informed consent for the processing of their data. This includes creating transparent privacy policies and providing easy-to-understand consent notices. Solutions like Privy’s Consent Governance Platform (CGP) and Inspect AI are designed to help enterprises manage their consent processes efficiently, ensuring that they comply with the Act​​​.
2. Data Minimization: The principle of data minimization requires that businesses only collect and process the personal data necessary for a specific purpose. Data fiduciaries must regularly review their data collection practices to ensure they are not collecting more data than required​.
3. Data Audits and Compliance Reports: Under the DPDP Act, businesses must regularly audit their data processing practices and maintain detailed compliance reports. The DPB has the authority to request these reports during an investigation or routine check. Tools like Privy’s Inspect AI can automate privacy gap assessments, helping businesses maintain real-time visibility into their compliance status and generate reports for audits​.
4. Handling Data Subject Requests: Businesses must be prepared to handle requests from data principals, such as requests for data access, correction, or deletion. Platforms like the Privy CGP offer structured ways for managing these requests, ensuring that businesses can comply efficiently with the DPDP Act​​.

FAQs on the DPDP Act and the Data Protection Board

Q1. What is the Digital Personal Data Protection Act (DPDP Act)?

The DPDP Act is India’s legal framework aimed at protecting the personal data of individuals. It mandates how organizations can collect, process, and store personal data, focusing on consent-based data usage and transparency.

Q2. Who is a Data Principal?

A Data Principal is any individual whose personal data is being processed. Under the DPDP Act, data principals have rights such as the right to access, correct, delete, or withdraw consent for the use of their personal data.

Q3. Who is a Data Fiduciary?

A Data Fiduciary is any organization or entity that determines the purpose and means of processing personal data. Data fiduciaries are responsible for ensuring that data is processed lawfully and that the rights of data principals are protected.

Q4. What rights do individuals have under the DPDP Act?

Individuals, or data principals, have several rights under the DPDP Act, including:

• The right to access their personal data.
• The right to correct or update inaccurate data.
• The right to delete their data.
• The right to withdraw consent for data processing.

Q5. What is the role of the Data Protection Board (DPB)?

The DPB is the enforcement authority responsible for ensuring compliance with the DPDP Act. It handles complaints from individuals, investigates potential violations, and can impose penalties on organizations that fail to comply with the law.

Q6. What are the penalties for non-compliance with the DPDP Act?

Penalties for non-compliance with the DPDP Act can be significant, depending on the nature of the violation. The DPB has the authority to impose fines that may amount to several crores in cases of serious data breaches or repeated non-compliance.

Q7. How can businesses ensure compliance with the DPDP Act?

To ensure compliance, businesses must implement robust data protection measures, including:

• Obtaining informed consent for data processing.
• Ensuring data minimization.
• Regularly auditing their data processing activities.
• Responding promptly to data principal requests for data access, correction, or deletion.

Using platforms like Privy’s Consent Governance Platform (CGP) can streamline these processes and help businesses stay compliant​​​.

Q8. What is consent management, and why is it important?

Consent management involves obtaining and managing permissions from individuals for the use of their personal data. Under the DPDP Act, organizations must ensure that data is only processed with the informed consent of the data principal. A robust consent management system is essential for complying with the Act and avoiding penalties​​.

Conclusion

The creation of the Data Protection Board marks a significant step toward ensuring digital privacy and data security in India. With the DPDP Act in place, individuals have greater control over their personal data, and organizations are held to higher standards of accountability and transparency. As businesses adapt to these regulations, tools like consent management platforms and automated privacy assessments will play a crucial role in helping them stay compliant.

The DPB’s oversight, combined with the growing awareness around data privacy, ensures that India is moving toward a more secure and transparent digital environment.

The post The Data Protection Board (DPB) & the DPDP Act appeared first on IDfy.

With technology being easily accessible to children these days, it is mandatory to ensure their privacy and safety. Thus, obtaining verifiable parental consent has become one of the bare minimum requirements that companies must abide by.

What does the DPDP Act say about parental consent? 

Section 9 of the DPDP Act clearly states that a data fiduciary must obtain ‘verifiable parental consent’ from the parent or a legal guardian before processing the personal data of children or a person with disability. A data fiduciary cannot process a child’s data if there’s a potential of having ‘any detrimental effect on the well-being of the child.’ The Act also prohibits ‘tracking, behavioral monitoring or targeted advertising directed at children’. 

However, the DPDP Act does not give any framework on ‘how’ companies can obtain verifiable parental consent. 

Can a data fiduciary be exempt from some rules for processing children’s data? 

The central government can decide that if a data fiduciary can prove that it processes children’s personal data safely, it may allow that organization to be exempt from some or all rules about processing children’s data. This would apply to children above a certain age, which the government will specify in its notification.

How can data fiduciaries obtain verifiable parental consent? 

Recently, Priyank Kanoongo, Chairperson at the National Commission for Protection of Child Rights (NCPCR) proposed a KYC-based verification method to obtain verifiable parental consent. This comes after NCPCR held a meeting with leading social media platforms such as Instagram, Youtube, WhatsApp and Twitter (now X). This however raises concerns about data privacy as documents are being collected on the pretext of ‘age gating’. There’s still a lot of loopholes that need to be resolved. 

The NCPCR also suggested that social media platforms will have to display disclaimers in English, Hindi and other vernacular languages before showing adult content. This will have serious ramifications for social platforms such as Instagram, TikTok, Snapchat etc. Here’s an example of a parent’s guide. 

Parental Consent Under the GDPR

The GDPR sets similar stringent requirements regarding the processing of minors’ data, particularly focusing on the age of digital consent and the importance of obtaining verifiable parental consent.

1. Age of Digital Consent

The GDPR establishes that children under the age of 16 cannot consent to the processing of their personal data for online services without parental consent. EU member states can lower this age limit to as low as 13, but not below.

For children between 13 and 16 years, parental consent is mandatory for processing any data, especially in cases where services such as social media, video streaming platforms, or gaming services are involved.

2. Informed Consent

Under GDPR, parental consent must be explicit and informed. The organization collecting data must provide a clear, transparent explanation of how the data will be used, stored, and shared. This includes clear details about the type of data collected, its purpose, and any third parties involved in processing.

3. Parental Verification

The GDPR obliges data controllers to implement reasonable efforts to verify that the consent given is from a legitimate parent or guardian. This involves methods such as secure identity verification processes, email confirmations, and digital authentication mechanisms. While the GDPR does not mandate a specific method of verification, it requires organizations to ensure that the process is robust enough to prevent fraud.

Comparison of Parental Consent Between DPDP Act and GDPR

Both the DPDP Act and GDPR place parental consent at the forefront of protecting minors’ data. However, they differ slightly in their approach:

• Age Threshold: The DPDP Act sets the age of consent at 18, while the GDPR allows flexibility for member states, with the age ranging from 13 to 16.
• Verification Standards: The GDPR provides more flexibility in terms of parental verification methods, whereas the DPDP Act places a stronger emphasis on robust, verifiable methods, such as requiring Aadhaar or other government-issued IDs in the Indian context.
• Multilingual Support: The DPDP Act specifically mandates multilingual support for consent forms, reflecting India’s diverse population, while GDPR focuses on transparency but does not specify multilingual requirements.

Managing the Data of Disabled Individuals

Both the GDPR and the DPDP Act emphasize the protection of vulnerable individuals, including disabled people. The handling of personal data for disabled individuals requires additional safeguards to ensure that their rights are respected, and they are not subjected to discriminatory practices.

GDPR Provisions for Disabled Individuals

The GDPR has several provisions designed to protect the rights of disabled individuals:

1. Informed Consent: Similar to minors, disabled individuals may require assistance or accommodations to provide informed consent. Data controllers are required to ensure that individuals with disabilities fully understand how their data will be used, and that they have equal opportunities to consent to or refuse the processing of their data.
2. Accessibility: Under the GDPR, organizations must provide data processing information in accessible formats. This means using formats that can be easily read by individuals with disabilities, such as braille, audio formats, or simplified language, to accommodate those with visual or cognitive impairments.
3. Right to Withdraw Consent: Disabled individuals, like any other data subjects, have the right to withdraw consent at any time. Organizations must provide accessible and straightforward methods for them to exercise this right, ensuring that they do not face additional barriers.

DPDP Act and Disabled Individuals

While the DPDP Act does not specifically highlight the rights of disabled individuals, the principles of transparency, accessibility, and user-centric consent management apply universally. Organizations are encouraged to adopt inclusive practices, ensuring that individuals with disabilities can provide informed consent and exercise their data rights.

Key considerations for handling the data of disabled individuals under the DPDP Act include:

1. Accessible Consent Forms: Organizations should ensure that consent forms are available in accessible formats, such as audio descriptions or screen reader-friendly text.
2. Accommodating Special Needs: Where necessary, guardians or caregivers should be involved in the consent process, especially in cases where the disabled individual may not fully comprehend the data processing implications.
3. Respect for Autonomy: The DPDP Act, in its commitment to protecting the rights of all individuals, mandates that consent must be informed and voluntary, including for disabled individuals. Organizations must ensure that disabled individuals have the same rights and opportunities to control their data.

Challenges in Implementing Parental and Disabled Consent Mechanisms

Something as simple as opening an email account will now need a proper consideration of age-proofing and parental consent. 

The complexity of implementing verifiable consent mechanisms, particularly for minors and disabled individuals, poses several challenges for organizations:

1. Verification Complexity: Verifying the identity of parents or guardians, and in the case of disabled individuals, their caregivers, can be resource-intensive. Balancing security with a seamless user experience is critical to ensuring compliance without causing user friction.
2. Data Security: Securing consent artifacts from tampering is a major challenge. Organizations must invest in technologies that ensure the integrity of these records. Solutions like Privy Consent Shield provide advanced encryption and tamper-proof storage to address this challenge. 
3. Accessibility: Ensuring that consent forms and withdrawal mechanisms are accessible to disabled individuals requires significant investment in user experience design and technology. Organizations must adopt best practices for inclusive design, such as providing multiple formats for consent notices.

Best Practices for Managing Parental and Disabled Consent

To effectively manage consent for minors and disabled individuals, organizations can adopt the following best practices:

1. User-Friendly Consent Mechanisms: Design intuitive consent forms that cater to parents, guardians, and individuals with disabilities. Avoid overwhelming them with technical jargon and make the process simple and clear.
2. Technological Tools for Verification: Use technologies like digital signatures, multi-factor authentication, and secure ID verification platforms to authenticate consent. Implement tamper-proof consent storage solutions to ensure compliance with both the DPDP Act and GDPR
3. Ensure Accessibility: Provide consent forms in multiple formats, including braille, audio, and screen reader-compatible formats. Ensure that withdrawal mechanisms are also accessible to all individuals, regardless of ability
4. Regular Audits and Updates: Regularly audit consent processes to ensure they remain compliant with evolving regulations. Update consent records when necessary and ensure that parents, guardians, and individuals with disabilities can easily update or revoke consent.

FAQs

1. What age requires parental consent under the DPDP Act and GDPR?
   Under the DPDP Act, parental consent is required for minors under 18 years old, while the GDPR requires parental consent for minors under 16, though individual EU member states can set the age as low as 13.
2. How can organizations verify parental consent?
   Organizations can verify parental consent using secure methods such as ID verification, digital signatures, or email confirmation loops. The DPDP Act places a stronger emphasis on government-issued IDs, while the GDPR allows more flexibility in the verification process
3. What protections are in place for disabled individuals under the GDPR?
   The GDPR mandates that organizations provide information in accessible formats for disabled individuals and ensure that they can give informed consent. It also grants them the right to withdraw consent at any time.
4. How should organizations store consent artifacts?
   Consent artifacts must be stored securely to ensure their integrity. Technologies like SHA-256 hashing and digital signatures can be used to make the consent records immutable and verifiable, ensuring they are tamper-proof.
5. How can disabled individuals exercise their data rights?
   Organizations must provide accessible tools and formats, ensuring that disabled individuals can exercise their rights, including the right to withdraw consent. These should be easy to use and available in formats that accommodate various disabilities.

Conclusion

Parental consent and the handling of data for disabled individuals are crucial aspects of both the DPDP Act and the GDPR. These regulations are designed to protect vulnerable populations from data misuse while ensuring that organizations handle their data responsibly and securely. By adopting best practices for consent management, leveraging advanced technologies for verification and storage, and ensuring accessibility, organizations can navigate these regulations effectively, ensuring compliance and building trust with users.

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That’s right — Advances and Cards/Internet banking — together account for 95% of all banking frauds. 

All other operational segments like forex, deposits, cash, cheques, and clearing accounts are tiny problems, in comparison, accounting for less than a percent of total banking frauds. 

Advances and Cards/Internet banking spotlight the most vulnerable areas for banks, and sidelining frauds in these areas builds up two formidable risks: 

1. They attract negative glare from the banking regulator, and 
2. The frauds whittle away — slowly and steadily at first, and then rapidly — at the bank’s precious capital.

Exponentially multiplying frauds are overburdening compliances

The rise in the number of frauds in these two segments has been jaw-dropping.

The total number of frauds in the Advances and Card/Internet segment leapfrogged by 10% and 708% respectively. When we take a bird’s eye view of frauds spanning all banking operations, total fraud incidents exploded from 9,046 in FY22 to 36,075 in FY23.

That’s a leap of almost 300%.

Fraud cases — area of operations

Source: RBI annual report 2023-24

Yep, we weren’t exaggerating about the jaw-dropping bit.

So, how can banks get on top of this situation? Is there a way to resolve this ungodly mess?

With IDfy, there sure is. 

But, first, we need to unravel the dense layers of the fraud epidemic in Indian banking.

Blind spots in the system

Banks, of course, have dedicated tons of resources towards nipping frauds that stem during and after loan disbursal.

But, most of the systemic defences have a miserable track record, evidenced by the mounting number of fraud cases.

Simply put, systemic guardrails like

• Early Warning Signals
• Transaction Monitoring System
• Stock Statement Verification
• Borrowers’ due diligence

are doing a sub-par job in capturing and reporting fraudulent episodes.

Why is loan disbursal so fraud-prone?

The explanation is two-fold. 

Firstly,  borrowers — both corporate and MSMEs — are conning banks by either masking shady transactions or completely forging bank statements. Borrowers are now going the extra mile in forging identification papers. 

Aadhar, driving license, PAN card, bank statements, education certificates, bank statements, salary certificates — all these and more are being forged by shady operators at the drop of a hat. 

Second, dated and juddering fraud radars have fallen behind the curve. Many of these systems — operating in silos — are as good as dead weight. The fact that these fraud radars are not fed with new data streams and do not have any real-time updation means that they are, at best, cosmetic and superficial.

Take the latest bank fraud case of Mandhana Industries, which seems to be gracing headlines in business dailies these days.

Indian fraud detection is in shambles

In the Mandhana Industries case, the CMD of Mandhana Industries — Purushottam Chhaganlal Mandhana and his family — managed to dupe a consortium of banks, led by the Bank of Baroda, out of a whopping ₹975 crore. 

The modus operandi was nothing out of the blue, and more-or-less followed the banking fraud playbook to the T. 

The CMD incorporated fictitious entities in the name of his employees and dummy transactions were conducted with these fake companies to build up an inflated turnover for Mandhana Industries. The inflated turnover was then furnished to the banks, who would go on to enhance Mandhana Industries’ credit facilities. 

The Enforcement Directorate also found that the funds were diverted from the company, camouflaged in third-party transactions, to the bank accounts of the promoter/ director and their family members. 

In the end, the funds were channelled towards rigging the company’s share price, purchasing real estate and jewellery, and settling personal debts. 

All along, none of the banks woke up to the fraudulent transactions and circular trading, until it was too late.

Where did the banks fail?

First and foremost, banks often fail to sniff out siphoning and diversion of funds at the group level of the borrower. Existing fraud detection systems need to be upgraded. Features like 

• Systemic guardrails that monitor transactions with related parties
• Higher supervision of creditors and debtors of borrower company 
• Elevated monitoring of funds transferred from parent company to subsidiaries
• Expanded scope of stock audit review and account monitoring

can dent the currently ballooning fraud levels but banks often junk these proposals given the massive burden it can place on their existing resources.

The tragedy is that all these underhand gambits could be nipped in the bud, and the borrower could be put under the spotlight, the moment the first sign of a shady transactions surfaces. 

This is where IDfy comes in…

How can IDfy help?

Bank frauds don’t operate in vacuums. Borrowers always leave behind fraudcrumbs, that unfortunately only pop into view, when seen retrospectively. However, alert banks can zero in on suspicious transactions and raise red flags before errant transactions become full-blown scams.

Onboarding IDfy as your risk-assessment partner will bolster your bank’s compliance and team’s risk underwriting heft. With IDfy’s solutions operating behind the scenes, the Mandhana scam would have been marked out at a nascent stage, scuttling it from snowballing into a large ₹975 crore NPA.

• Our thorough checks verify a business’s income against GST, ITR, bank statements, and MCA database. Our comprehensive checks ensure due diligence is conducted using AML, legal history, and statutory payment checks. 
• IDfy’s solutions offer seamless KYC, KYB, and UBO (Unified Beneficial Owner) confirmation as per RBI’s norms.
• Our databases can help you run real-time checks on companies, group companies and directors. Legal and statutory checks can alert banking staff to potentially suspicious borrowers before loan disbursals.
• Our exhaustive database can run employment background checks helping banks weed out borrowers with sketchy or dubious professional trajectories.
• Our digitised court record database can scan through 23 crore court records and documents. Criminals, fraudsters and conmen often tend to repeat their modus operandi. Every borrower with a criminal background or FIR lodged against him will be red flagged by our database, and alert bank officials. 
• With us, banks can accelerate their work processes by enabling customers to E-sign/E-stamp legal or loan documents through Aadhaar e-sign during loan disbursal.

For more details on how IDfy can help you eliminate fraud and establish trust, write to us at shivani@idfy.com

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As if that wasn’t enough, getting the bank to accept his proof of identity documents was another challenge. Not only did he have to get numerous photocopies of his original documents, but each copy had to be notarized by a public notary for the bank to consider it valid. If he were lucky, the bank would consider his application within the following month. 

Getting credit, especially for first-time borrowers was a painful endeavor, perhaps not because of a lack of funds, but due to the administrative overhead around the application and the archaic verification process.  

VKYC: The Secret Sauce in Instant Credit 

Uday’s plight, shared by many similar individuals and MSMEs across India, changed with the arrival of Aadhaar-based identity verification systems. This solution landscape has since evolved so rapidly that Video-KYC (VKYC), where the person needn’t be physically present at the verification site, has become an industry standard.

Whether you’re a small business owner in Bidar or an individual trader in Amravati, as long as you have a functional mobile connection, you can apply for credit from a bank and receive a decision within minutes of submitting your application. Oh, and you no longer need to submit reams of photocopied and notarized documents for the bank to validate your application or establish your identity.

A Video KYC authentication uses advanced facial recognition and machine learning technologies to ensure that the lender can establish the borrower’s identity in a relatively frictionless manner. A camera phone on a barebones mobile data network is all that is needed for this to work.

As illustrated above, the entire process is broken down into specific units of work that are done before, during, and after the call. With such a systematic process, real-time conditions on the borrower’s end, such as their language preference and the strength of their local mobile data network can be accounted for to ensure a good quality of interaction between the borrower and the lender’s agent. With lower drop-offs and a higher success rate of Video KYC, lenders are able to provide truly instantaneous credit.

Anatomy of a Paperless Onboarding: How Does Video KYC (VKYC) Work? 

The way in which Video KYC works would appear to be a passage in a science function book, rather than a process that’s almost taken for granted today. The technology enabling this evolved so quickly that it changed the credit landscape almost overnight. Let’s take a look under the hood, and try to understand how this magic works. 

It starts with a secure video connection that connects the borrower and a representative of the lending institution. The emphasis is on secure because the borrow shares sensitive identity related information, so the security of the connection cannot be compromised with. It’s tempting to trivialise this step, but picture a remote village where you struggle to receive a sufficiently strong data network, and the challenges begin to appear. To achieve pan-India coverage for such a Video KYC solution, companies such as IDfy develop very specialised solutions that enables live videos to render consistently without the risk of frequent drop-offs.

Next, the borrower uploads a government-issued identity, which could be an Aadhaar card, or a driver’s license. A piece of software then intelligently extracts all the text from the identification document, and structures this extracted text in a readable format. This step also isolates the borrower’s photo on the identification form and discerns all the relevant facial features from it. 

Using the phone’s camera, the Video-KYC application then captures the borrower’s picture, ensuring it’s a live person by prompting the borrower to blink their eyes and only capturing a picture when the borrower’s liveness is established. This also prevents fraudsters from using an image or a still photo and gaming the verification process. 

Sophisticated machine learning algorithms then perform what’s known as “face match”, where extracted features from the borrower’s identity document are matched against the corresponding features of the borrower’s image captured during the verification process. The application spits out a percentage parameter, which indicates the closeness of the two images as analyzed by the face-match algorithm. Only after a satisfactory threshold of facial features match, does the verification process gives a “green” result. 

Advanced Video KYC solutions such as IDfy’s include advanced machine learning and artificial intelligence models that consider hundreds of borrower characteristics to flag suspicious or high-risk applications during the review process. Combining this information with the face-match results gives lenders the confidence that they are indeed dealing with a legitimate borrower. 

And before we forget, the UIDAI has stringent guidelines on Aadhaar-based KYC guidelines that specify data retention protocols. A stat-of-the-art Video KYC solution ensures that lenders always stay compliant with these guidelines, which obviously change and evolve with time. 

Seamless Credit: The Jet Fuel Powering the Nation’s MSME

This revolutionary technology has had a transformational impact on the lifeblood of India’s economy – the MSMEs or Micro, Small, and Medium Enterprises. 

According to a May 2024 McKinsey report, MSMEs contribute to nearly 30% of the total business value generated by Indian corporates and employ nearly two-thirds of the country’s workforce. It’s ironic that these businesses historically struggled to obtain credit, and even when they did, it required long-drawn due diligence, frustrating paperwork, and provision of assets as collaterals, which not many owned. The situation was worse for first-time borrowers who didn’t have a credit history nor did they have a relationship with lenders. 

Access to seamless credit is vital for the growth of any business, but with thin working capital and sub-optimal payment terms, it was even more so for MSMEs. Whether it’s expansion of capacity or investing in acquiring domestic and overseas customers, capital is key. Lenders too, for their part, were looking to deploy capital that would fetch them higher risk-adjusted yields, and MSMEs loans were seen as a relatively safe lending instrument. 

Enter Video KYC, and the transformation of the MSME lending landscape. From an era of manual documentation and identity verification, MSMEs can borrow with minimal documentation and frictionless, instantaneous, and remote identity verification. The cardinal constraint that borrowers and lenders needed to be physically co-located no longer existed. With the geographical barrier removed, businesses in the most inaccessible parts of the country could now borrow and fuel their growth. This is how Video KYC transforms financial inclusion for remote areas in India. 

First-time borrowers have more reasons to rejoice. No longer is a lack of credit history an impediment to getting credit at good terms. With increased digitization, lenders have the confidence to lend against receivables and other instruments that provide a guage to the borrower’s liquidity. 

This has increased the velocity of credit application processing and disbursement, easing the much dreaded working capital problems for MSMEs, while giving comfort to lenders that they are lending to legitimate, verified entities. 

With MSMEs getting timely access to credit, their expansion plans have yielded significant benefits, both in terms of topline revenue growth and better operational efficiencies due to timely investment in technology and capacity building. All this, eventually contributing to nation building and giving stronger credence to the “Make in India” movement.

Homes, Cars, and Dreams: Borrow Anywhere, Anytime

The impact on families and individuals has also been transformative and life-changing in many ways. Whether it’s a home loan for a family that moves into their first owned home or a young professional getting their first vehicle loan approved after moving to a new city from their hometown, the mechanism of owning an asset has changed for the better.

Small businesses, that used to previously struggle to borrow, are now able to grow their businesses thanks to the simplification in the entire process brought about by Video KYC technologies. The difference is not just in the democratization of credit through increased reach, but also in the speed of decision-making the technology has enabled, allowing businesses and consumers the comfort of a fair, expeditious process. With the Video KYC verification process now being done online, agents can the lender’s agents can communicate with borrowers in the relevant regional language, borrowers from different regions find it easier to relate to the process and be comfortable conducting sensitive, identity-related activity in familiar settings.   

 Crucially, with Video KYC resulting in the plummeting cost of identity verification, an increasingly larger number of regulated, local institutions can now deploy capital to provide credit to worthy borrowers. Lenders can realize better yields, while businesses get timely access to working capital – a truly win-win situation that is reaching every corner of the country. 

IDfy has been at the forefront of providing solutions to banks and credit institutions, which has led to a dramatic rise in the conversion of loan applications. We do this by ensuring that both the borrower and the lending agent have the right experience before, during, and after the verification process—Want to learn how IDfy can help you convert more credit customers faster? Fill out the form for more information!

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A key challenge for Foodpanda, as with many gig-economy businesses, is ensuring a reliable supply of drivers while managing a high churn rate.

This means continuously onboarding new delivery partners—sometimes processing up to 2,000 applications in a single day during high-demand periods and special promotions.

Foodpanda turned to IDfy to help streamline this process and scale their operations without sacrificing trust or security.

Here’s how IDfy makes a difference for Foodpanda:

1. Keeping the Foodpanda ecosystem safe

With IDfy’s NBI-based criminal checks, Foodpanda ensures that only trustworthy and reliable drivers are onboarded, reflecting their commitment to customer safety and trust. This proactive approach helps mitigate risks and ensures that every delivery partner reflects Foodpanda’s commitment to customer safety and trust. By creating a safer ecosystem, Foodpanda strengthens its reputation and keeps customers coming back.

2. Ensuring an adequate supply of drivers

Historically, it would take a driver 2-3 days to get onboarded with Foodpanda. Now, drivers can complete the entire process themselves in under 3 minutes. With IDfy’s solution, Foodpanda seamlessly onboard large volumes of drivers through a simple web link or QR code. This streamlined approach allows Foodpanda to accelerate its onboarding, helping it stay ahead of the competition while others face delays.

3. Keeping the onboarding cost down through automation

IDfy streamlines the onboarding process by enabling applicants to upload the correct documents instantly, significantly reducing errors and saving time. This automation aligns with Foodpanda’s mantra of “Start with the customer, end with the customer” leading to a one-click approval process for their operations team. Not only does this reduce costs, but it also ensures a hassle-free experience for both Foodpanda and its drivers.

About Foodpanda:

Foodpanda, a leading food delivery platform in the Philippines, has rapidly grown since its launch in 2014, now serving over 150 cities and towns. Catering to the country’s vibrant food culture, Foodpanda offers a diverse range of local and international cuisines. With a vast network of restaurants and delivery partners, it ensures prompt and reliable meal delivery to millions of satisfied customers.

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Here at IDfy, the DPO role is taken up by a key member of the Infosec team. 

This blog explores the evolving role of the DPO under the DPDP Act, highlighting responsibilities, challenges, and best practices. 

Who is a Data Protection Officer (DPO)?

A Data Protection Officer is a designated individual responsible for overseeing an organization’s data protection strategy and ensuring compliance with data privacy laws. While the role is often mandated under legislations like the GDPR in the European Union, India’s DPDP Act also requires organizations that handle significant volumes of personal data or sensitive personal data to appoint a DPO.

When enterprises go for quality-related certifications such as ISO or SOC2, a data protection plan becomes imperative. And for that a DPO is critical. 

The DPDP Act: A Quick Overview

India’s Digital Personal Data Protection Act (DPDP) was passed to safeguard personal data by mandating how organizations, known as Data Fiduciaries, should collect, store, and process personal data.

Some of the core principles of the DPDP Act include:

• Data Minimization: Only necessary data for a specific purpose should be collected.
• Purpose Limitation: Data should only be used for purposes consented to by the data principal. No more cheeky upsell and cross sell loopholes. 
• Lawful Processing: Data can only be processed with the consent of the data principal or for other lawful reasons.
• Security Safeguards: Organizations must ensure data security and prevent breaches.
• Accountability: Data Fiduciaries are responsible for their data processing activities, including appointing a DPO.

Why is a DPO Crucial Under the DPDP Act?

The DPDP Act places substantial obligations on Data Fiduciaries and introduces stiff penalties for non-compliance. In such an environment, the DPO’s role is not only crucial but mandatory for certain organizations, especially those processing significant volumes of sensitive personal data.

1. Legal Compliance: The DPO ensures that the organization is adhering to the provisions of the DPDP Act, helping avoid costly fines.
2. Data Subject Rights: Under the DPDP Act, individuals (Data Principals) have extensive rights, including the right to access, rectify, and delete their data. The DPO facilitates these rights and ensures their prompt execution.
3. Risk Mitigation: Privacy risks can lead to reputational damage, legal action, and loss of business. A DPO helps identify and mitigate these risks before they escalate.
4. International Standards: As global privacy standards evolve, the DPO ensures that the organization remains compliant with international frameworks like the GDPR, while aligning with local regulations like the DPDP Act.

What are the responsibilities of a Data Protection Officer under the DPDP Act?

Under the DPDP Act, a DPO’s responsibilities are extensive. They play a proactive role in building a privacy-first organization. Below are the core responsibilities expected from a DPO in light of India’s DPDP Act:

1. Monitoring Compliance

The DPO monitors and ensures that the organization complies with all requirements of the DPDP Act. This includes regular audits of data handling practices, ensuring lawful data collection and processing, and overseeing data subject requests.

2. Data Principal Access Requests

Under the DPDP Act, individuals have the right to access their personal data. The DPO must facilitate this process by providing data subjects with access to the information held about them, responding to deletion requests, and managing consent revocations.

3. Consent Management

The DPDP Act emphasizes consent as the legal basis for data processing. The DPO ensures that the organization’s consent management processes are robust, allowing data principals to grant, revoke, or modify their consent effectively. The Privy Consent Governance Platform (CGP) is an example of a system that helps DPOs manage consent by providing transparency and control over data handling.

4. Training and Awareness

A key responsibility of the DPO is to cultivate a privacy-aware culture within the organization. This involves conducting training sessions for employees on data protection principles, the importance of safeguarding personal data, and the implications of non-compliance.

5. Data Breach Response

In the event of a data breach, the DPO leads the investigation, assesses the impact, and coordinates with the regulatory authorities to manage notifications. The DPDP Act requires data breaches to be reported within a specific timeframe, making the DPO’s role in managing breaches crucial.

6. Record-Keeping and Auditing

The DPO is responsible for maintaining detailed records of data processing activities and conducting audits to ensure compliance. Under the DPDP Act, maintaining proper Records of Processing Activities (RoPA) is critical. 

Common Challenges for a Data Protection Officer 

Infosec, Cyber security and DPOs are notorious for adding friction to business processes. But at the same time they keep the work environment safe for all of us. 

Being a DPO comes with its set of challenges, especially in a jurisdiction like India where privacy laws are still evolving. Some common challenges faced by DPOs include:

1. Keeping Up with Evolving Regulations: As privacy laws continue to change, staying updated and ensuring that the organization adapts accordingly can be difficult.
2. Balancing Business and Privacy: DPOs often face the challenge of balancing the organization’s business goals with the stringent requirements of privacy laws.
3. Managing Global Compliance: For organizations that operate internationally, a DPO must ensure compliance with local laws like the DPDP Act while also adhering to international regulations like GDPR or CCPA.

FAQs 

To help both DPOs and organizations better understand the DPDP Act, we have compiled a list of frequently asked questions.

Q1. What are the main objectives of the DPDP Act?

The DPDP Act aims to protect the personal data of individuals by regulating the collection, storage, and processing of personal data. It gives individuals greater control over their data and holds organizations accountable for the way they handle personal information.

Q2. Who needs to appoint a DPO under the DPDP Act?

Organizations that process large volumes of personal data or sensitive personal data are required to appoint a DPO. This is particularly mandatory for organizations categorized as Significant Data Fiduciaries under the Act.

Q3. What rights do Data Principals have under the DPDP Act?

Data Principals have several rights under the DPDP Act, including the right to:

• Access personal data held about them
• Request corrections or deletions
• Revoke consent for data processing

Q4. How can organizations ensure compliance with the DPDP Act?

Compliance can be achieved through:

• Appointing a DPO to oversee data protection
• Implementing a robust consent management system
• Conducting regular audits of data processing activities
• Training employees on privacy laws and best practices

Q5. What is the penalty for non-compliance under the DPDP Act?

The penalties for non-compliance under the DPDP Act can be severe, ranging from financial fines to restrictions on data processing activities.

Q6. What should a DPO do in case of a data breach?

In case of a data breach, the DPO must:

• Immediately assess the breach’s impact
• Notify the Data Protection Authority within the mandated time frame
• Inform the affected individuals if required
• Take measures to contain and remedy the breach

Q7. How does the DPDP Act handle sensitive personal data?

Sensitive personal data, such as financial information, health records, or biometric data, requires more stringent protection. Processing of such data generally requires explicit consent, and organizations must implement enhanced security measures to protect this type of data.

Conclusion

The Data Protection Officer plays a critical role in navigating the complex landscape of data privacy regulations, particularly in light of India’s DPDP Act. By ensuring compliance, managing risk, and building a privacy-conscious culture within the organization, the DPO safeguards both the organization and the rights of individuals. With penalties for non-compliance being significant, the role of the DPO is more crucial than ever, helping businesses align with legal obligations while fostering trust among their users.

For organizations seeking to streamline their compliance efforts, solutions like the Privy Consent Governance Platform can significantly enhance a DPO’s capabilities in managing consents, audits, and compliance checks.

As data protection continues to evolve, the DPO will remain at the forefront, ensuring that personal data is handled with care, transparency, and accountability.

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In this blog, we’ll explore the anatomy of a Consent Artifact, why it’s essential, and how it works in practice, particularly in the context of the DPDP Act. By the end, you’ll not only understand the Consent Artifact but also why it matters in safeguarding your digital rights.

What is a Consent Artifact?

Imagine you’re signing up for a new OTT streaming service. You provide personal data like your name, email, and payment details. Behind the scenes, a digital record, called a Consent Artifact, is created. This record documents the process of how your consent was sought and granted, making the entire process transparent and verifiable.

Legally, a Consent Artifact is a machine-readable electronic record that contains the essential elements for a Data Fiduciary (the service provider) to communicate with you, the Data Principal (the individual whose data is being collected), and allows you to manage your consent. It provides the framework for you to give, review, withdraw, and control your consent at any time.

The Key Components of a Consent Artifact

A Consent Artifact is not just a technical record. It’s a framework designed to protect your rights as a data subject. Let’s break down its essential components:

• Identification Details: The artifact contains details that identify both the Data Fiduciary (the company collecting the data) and the Data Principal (you, the individual). For e.g. Your name, the streaming service’s name (e.g., “MovieStream Inc.”), and unique identifiers for both parties.
• Personal Data Summary: The artifact provides a summary of the personal data for which consent is given, without storing the actual data to ensure security.
• Specified Purpose: It outlines the reason for which your data is being collected, making it clear and specific. For e.g.“Your name and email are used to create your account. Payment information is processed for subscription fees.”
• Unique Identifier: A unique identifier ensures that the Consent Artifact can be tracked and referenced. For e.g. “Consent Record ID: 98FD7A3B.”
• Electronic Signatures: The artifact includes electronic signatures from you and potentially a Consent Manager, ensuring that the agreement is legitimate.
• Compliance with Legal Frameworks: The artifact must comply with specific legal frameworks like India’s Electronic Consent Framework, ensuring standardization and adherence to privacy laws.

Watch the full webinar on Processing the DPDP Act: What Data Processors Should Know

The Role of a Consent Manager

A consent manager can help make managing your consents easier. Acting as a trusted intermediary, they simplify the process of managing your data permissions across multiple platforms. With a consent manager, you don’t need to navigate complex legal or technical terms. They help ensure that you have full access to, and control over, your consent at all times.

For example, if you are using multiple services, a consent manager allows you to review and manage all your consents from a single platform, simplifying the process of withdrawing consent or checking what data has been shared and with whom.

A Journey Through Digital Consent: Real-Life Example

Let’s consider your journey as a new subscriber to a streaming service. When signing up, you are presented with a Notice to Seek Consent, which clearly explains the types of personal data being collected and for what purpose:

• Name and Email: “We need these to register your account.”
• Payment Information: “We’ll use your card details to process payments.”
• Duration: “Your payment information will be retained until your subscription ends.”

After reviewing the terms, you click “I agree”, and a Consent Artifact is generated. This document remains accessible to you at any time, allowing you to withdraw consent, correct personal data, or review what data was shared.

Let’s say after six months, you decide to cancel your subscription. Through the Consent Artifact, you can easily revoke your consent by clicking a link or contacting the consent manager. Your data is then deleted, and the artifact is updated to reflect this withdrawal, ensuring transparency.

FAQs on Consent Artifact and the Digital Personal Data Protection Act (DPDPA)

1. What is the Digital Personal Data Protection Act (DPDPA)?
   The DPDPA is a comprehensive legal framework enacted by the Indian government to protect personal data and regulate how organizations handle the personal data of individuals.
2. What is the role of consent under the DPDPA?
   Consent is a cornerstone of the DPDPA. The Act mandates that Data Fiduciaries must obtain informed, specific, and explicit consent from individuals before collecting and processing their personal data.
3. How is a Consent Artifact different from traditional consent mechanisms?
   Traditional consent mechanisms often consist of checkboxes or terms of service agreements. A Consent Artifact, however, is a digital record that not only captures consent but also allows the individual to track, review, and withdraw consent in a more transparent and user-friendly way.
4. Can I withdraw my consent under the DPDPA?
   Yes. The DPDPA gives individuals the right to withdraw their consent at any time. This must be as easy as it was to give consent in the first place.
5. What happens to my data if I withdraw my consent?
   Once consent is withdrawn, the Data Fiduciary must stop processing your data and, unless required by law, delete it. This process is tracked through the Consent Artifact, ensuring transparency.
6. What if the Data Fiduciary fails to comply with my consent preferences?
   The DPDPA sets up a Data Protection Board that will oversee compliance with the Act. You can file a complaint if a Data Fiduciary does not honor your consent preferences.

Why Consent Artifacts Matter?

The Consent Artifact is a game-changer for digital privacy. In an age where personal data is highly valuable, the Consent Artifact empowers individuals to take back control. Here are a few reasons why it matters:

• Empowerment: Individuals have greater control over their personal data, with the ability to easily manage, review, or revoke consent.
• Transparency: The artifact provides a clear record of what data has been shared and for what purpose, fostering trust between users and companies.
• Security: Consent Artifacts do not store personal data themselves, reducing the risk of data breaches.

In a world that increasingly runs on data, the Consent Artifact represents a step forward in protecting privacy. As we move towards a more data-driven future, this framework promises to safeguard our personal data while enhancing accountability across organizations.

Conclusion: The Future of Consent

As digital interactions continue to expand, so does the need for more robust and transparent mechanisms to protect personal data. By providing a clear, accessible way for individuals to manage their consent, the Consent Artifact enhances trust and accountability in the digital ecosystem. With the increasing reliance on personal data, it’s more important than ever for individuals to have tools that empower them to take control of their data. 

Whether you’re a business or an individual, understanding how this system works is critical to navigating the future of digital interactions in a way that respects privacy and ensures compliance with evolving data protection laws.

The post What is a Consent Artifact? appeared first on IDfy.

This blog will delve into what it means to be a Significant Data Fiduciary, the responsibilities that come with it, and how organizations can comply with the legal frameworks, focusing on the Indian DPDPA.

Who is a Data Fiduciary?

Before diving into the specifics of a Significant Data Fiduciary, it’s essential to recall the broader category of a Data Fiduciary. A Data Fiduciary is any person, company, or organization that determines the purpose and means of processing personal data. They can be businesses, government bodies, or even individuals that collect, store, or use data for various operations.

For example, if you run a website that collects customer data to improve user experience, you are a Data Fiduciary because you are responsible for how that data is processed. Every Data Fiduciary has a legal obligation to handle data responsibly and ensure compliance with relevant laws and privacy regulations.

What Makes a Data Fiduciary “Significant”?

A Significant Data Fiduciary (SDF) is a subcategory of Data Fiduciaries that handle high volumes of personal data or process sensitive data that poses greater risks to individual rights and freedoms. The DPDPA of India specifically defines criteria for what qualifies a Data Fiduciary as “Significant.” These criteria typically include factors like:

1. Volume of Data Processed: The larger the volume of personal data being handled, the greater the potential risks involved. Organizations processing large amounts of data are required to take extra precautions to protect individual privacy.
2. Type of Data: If the data includes sensitive personal information such as biometric details, health records, or financial data, the fiduciary is likely to be classified as significant due to the higher risks associated with misuse or unauthorized access.
3. Impact on National Security and Public Interest: Entities involved in sectors like telecommunications, finance, or government services—where data breaches can have far-reaching consequences for public safety and national security—are often classified as Significant Data Fiduciaries.
4. Risk to Individual Privacy: Organizations whose data practices could pose significant risks to individual privacy may also be classified as SDFs. This could include companies engaged in behavioral tracking, profiling, or AI-driven data analysis.

Responsibilities of a Significant Data Fiduciary

Being classified as a Significant Data Fiduciary comes with enhanced obligations. These entities are expected to uphold higher standards of transparency, accountability, and security. Let’s look at the key responsibilities that come with this classification:

1. Appointment of a Data Protection Officer (DPO)

Significant Data Fiduciaries are required to appoint a Data Protection Officer (DPO), who acts as the central point of contact for regulatory authorities and data principals. The DPO is responsible for monitoring compliance, conducting audits, and ensuring that data practices align with the legal framework.

2. Conducting Data Protection Impact Assessments (DPIA)

SDFs must regularly carry out Data Protection Impact Assessments (DPIAs), particularly before introducing new technologies or processes that involve the handling of personal data. DPIAs assess the potential risks to individual privacy and help ensure that appropriate safeguards are in place.

3. Periodic Data Audits

Regular audits of data processing activities are mandatory to verify compliance with the DPDPA. These audits ensure that data is being processed for its intended purpose, access to it is limited to authorized personnel, and any third-party processors adhere to the same privacy standards.

4. Enhanced Transparency Measures

Significant Data Fiduciaries are expected to adopt heightened transparency measures. This includes providing detailed privacy notices to data principals, outlining how their data is being used, who it is shared with, and for what purposes. SDFs must also ensure that data principals can easily access and manage their consent preferences.

5. Compliance with Sectoral Regulations

In addition to the DPDPA, SDFs are often subject to sector-specific regulations, such as those from the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI). For instance, financial institutions must adhere to stringent rules around data storage and sharing to prevent identity theft and fraud.

6. Reporting of Data Breaches

In the event of a data breach, Significant Data Fiduciaries must notify the Data Protection Board of India and impacted data principals within a prescribed time frame. Failure to do so could result in hefty penalties and reputational damage.

How to Ensure Compliance as a SDF? 

Complying with the DPDPA and other regulatory frameworks can be challenging, especially for large organizations handling massive amounts of data. However, implementing robust data governance practices can significantly mitigate risks and ensure compliance.

1. Adopt a Consent Governance Platform (CGP)

A Consent Governance Platform (CGP) can help organizations manage consent efficiently. It allows you to record, update, and manage the consents given by data principals, ensuring that all data processing activities have a legal basis. Furthermore, a CGP provides the transparency and auditability required for compliance with the DPDPA and other data protection laws​.

2. Leverage AI for Data Compliance Monitoring

Using tools like Inspect AI can assist Data Protection Officers by automating the compliance assessment process. Inspect AI identifies compliance gaps in digital journeys, ensuring that personal data collection practices align with regulatory requirements. This not only reduces human error but also ensures that organizations stay ahead of evolving privacy regulations​​.

3. Ensure Immutable Consent Records

Using technologies like Privy Consent Shield, organizations can create immutable consent artifacts. These records ensure that any changes to consent (e.g., revocation or re-consent) are securely logged and verifiable. This tamper-proof mechanism is crucial for demonstrating compliance during audits and legal disputes​.

FAQs

1. How does a Data Fiduciary become classified as a Significant Data Fiduciary?
   A Data Fiduciary is classified as “Significant” based on factors like the volume and sensitivity of data processed, risks to individual privacy, and national security implications. Regulatory authorities may notify an organization if it qualifies as a Significant Data Fiduciary.
2. What is the role of a Data Protection Officer (DPO) for SDFs?
   The DPO ensures that the organization complies with data protection laws by conducting audits, overseeing DPIAs, and liaising with regulatory bodies. The DPO also ensures that data principals can exercise their rights under the DPDPA.
3. What happens if a Significant Data Fiduciary fails to comply with the DPDPA?
   Failure to comply with the DPDPA can result in significant penalties, including fines, legal action, and damage to the organization’s reputation. Data breaches or mishandling of personal data can lead to severe consequences for SDFs.
4. How can an organization prove compliance during audits?
   Using tools like the Consent Governance Platform allows organizations to generate tamper-proof audit trails and consent artifacts, which can be used to demonstrate compliance during regulatory audits​.

The post Who is a Significant Data Fiduciary under the DPDP Act? appeared first on IDfy.

At IDfy, when we started a discovery of the DPDP compliance we came across many insights. Overall we realized that organizations have never been structuring their systems or processes keeping consent in mind. So unfortunately, very often, the left hand does not know what the right hand is doing. 

Here’s what a DPDP solution must have

1. Consent Governance and Lifecycle Management

Under the DPDPA, one of the most crucial principles is ensuring that individuals (referred to as data principals) have control over their personal data. Consent must be informed, freely given, specific, and revocable at any point. 

Key Features:

• Granular Consent Collection: A good DPDP solution should support the collection of consent at multiple levels, ensuring that data principals have clear choices about which personal data they are willing to share and for what purposes.
• Consent Lifecycle Management: Managing consent doesn’t stop at collection. An ideal solution will help data fiduciaries track and log the entire lifecycle of consent for each purpose- when it was given, revoked, updated, or re-consented. This is critical for auditing and regulatory compliance to ensure accountability. 
• Multilingual Support: In diverse countries like India, consent notices must be accessible in multiple languages. Supporting translations and transliterations ensures that individuals fully understand what they are consenting to, regardless of language barriers.
• Consent Revocation: Data fiduciaries should be able to use a DPDP solution to setup processes for consent withdrawal/revocation. These processes should also be able to notify data processors in case a data principal has decided to revoke their consent.

2. Automated Data Principal Access Request Management

The DPDPA empowers data principals to access, review, and request deletion or rectification of their personal data. These rights create a strong need for efficient management of Data Principal Access Requests (DPAR).

Key Features:

• Map out data processing activities specific to data type: A DPDP solution should have the capability to assign the processing of certain data to certain data processors. This can also be extended to assigning certain journeys to specific data processors too.
• Self-Service Portal: A user-friendly portal where data principals can easily submit access requests, review their data, and raise queries is essential. This empowers users to exercise their rights without complex interactions. Just like those email unsubscribe pages – but on steroids. 
• Automated Workflow: Automation in handling requests ensures prompt responses and reduces manual effort, ensuring that organizations meet the regulatory timelines for request processing.
• Request Tracking and Status Updates: Keeping data principals informed about the status of their requests through real-time tracking, updates, and expected resolution dates fosters transparency and builds trust.
• Secure Data Retrieval and Delivery: When responding to data access requests, organizations must ensure that personal data is securely retrieved and delivered, adhering to encryption standards to avoid data breaches during the process.

3. Data Processor and Third-Party Management

In the modern business landscape, organizations rarely process all personal data in-house. Third-party data processors are involved, which adds a layer of complexity when it comes to ensuring compliance with data protection regulations.

In more candid words, managing consent across sub-processors is a minefield. 

Key Features:

• Data Processor Inventory: A robust DPDP solution should allow organizations to maintain an updated inventory of all data processors and sub-processors involved in handling personal data. This includes tracking the type of data being shared, the purpose of processing, and relevant contracts.
• Real-Time Monitoring: A solution that enables ongoing monitoring of data processors’ activities helps ensure that third parties are complying with DPDPA regulations at all times.
• Processor Compliance Audits: Regular audits and reports on the data processor’s adherence to regulations provide an additional layer of protection and ensure accountability throughout the data lifecycle.

We at IDfy recently attended a DPDP workshop held by MeitY where we learnt about the challenges of ensuring data accuracy while maintaining a data inventory. For instance, if a data breach occurs, you need the correct contact details of your customers to inform them so they can respond accordingly. At the time of company mergers or collaborations, data fiduciaries should allow data principals the right to disallow their data from being transferred or deleted. Your customers will surely thank you for it!

4. Records of Processing Activities (RoPA) Automation

Maintaining accurate and up-to-date Records of Processing Activities (RoPA) is a key requirement of many data privacy laws, including the DPDPA. This document provides an overview of how, why, and where personal data is being processed, and by whom.

Key Features:

• Automatic RoPA Generation: A good DPDP solution should automate the generation and maintenance of RoPA, ensuring that it is always up to date. This reduces manual effort and the risk of errors.
• Data Mapping: The solution should be able to map personal data fields to their associated processing purposes and data processors. This ensures that organizations have a clear view of their data flows and can quickly identify potential compliance gaps.
• Compliance Reporting: Regular reports that can be used for internal reviews or shared with regulators during an audit are essential for proving that data processing activities are compliant.

5. Security, Encryption, and Data Integrity

Data security is paramount when handling personal data. The DPDPA and similar regulations require organizations to implement technical and organizational measures to protect personal data from unauthorized access, loss, or corruption.

ISO and SOC 2 certifications go a long way in establishing the security credentials. 

Key Features:

• Encryption Standards: Strong encryption methods, such as SHA-256, should be used to secure personal data both in transit and at rest. This protects sensitive data from unauthorized access during its lifecycle.
• Immutable Data Storage: Solutions that provide version control and immutable data storage ensure that once personal data or consent records are stored, they cannot be tampered with or deleted. This is critical for compliance and legal purposes.
• Tamper-Proof Consent Artifacts: Consent records must be tamper-proof, ensuring that they cannot be altered without proper authorization. This builds trust and provides robust proof of compliance during audits.
• Audit Trails: Detailed logs of all data access and modifications should be maintained to monitor and track unauthorized activities. This is vital for both compliance and operational security.

6. Compliance with Sector-Specific Regulations

In India, beyond the DPDPA, many sectors such as banking, insurance, and healthcare are governed by additional regulations. Solutions that cater to these industries must account for not only the DPDPA but also sectoral rules from entities like the Reserve Bank of India (RBI) and Insurance Regulatory and Development Authority of India (IRDAI).

For example, Banks are required to keep customer data for upto 8 years – this would override any DPDPA provisions for automatic consent revocation. 

Key Features:

• Customizable Consent Management: Organizations should be able to customize consent forms to meet both general data protection regulations and industry-specific requirements. This includes identifying consents that are mandatory, revocable, or re-consentable based on the type of data being processed.
• Sector-Specific Processing Rules: Advanced solutions provide templates and tools to easily comply with sectoral regulations by setting specific rules for data processing and consent management.

7. Comprehensive Reporting and Analytics

Reporting is a crucial element of demonstrating compliance with data privacy laws. Organizations need to generate and analyze reports that provide insights into data processing activities, consent management, and compliance status.

Key Features:

• Compliance Dashboards: A real-time dashboard that provides insights into key performance indicators (KPIs) such as the number of consents collected, revoked, or updated is essential for data protection officers (DPOs).
• Request Processing Time Analytics: Insights into how long it takes to process data access requests or consent-related changes allow organizations to optimize their processes and ensure they are meeting regulatory timelines.
• Breach and Incident Reporting: Solutions should integrate breach and incident reporting systems to quickly assess the scope of data breaches and notify affected parties as required under the DPDPA.

Watch the full webinar on Processing the DPDP Act: What Data Processors Should Know

Privy: A DPDP Solution to Empower you Data Protection Officer (DPO)

In the evolving landscape of data protection, having a trusted solution provider can make all the difference. One such name that has consistently aligned itself with data protection best practices is Privy. Privy, by IDfy, offers a range of solutions designed to streamline compliance with privacy regulations like the DPDPA and help businesses manage their data privacy obligations more effectively.

Privy Products

• Consent Governance Platform (CGP): The Consent Governance Platform by Privy is tailored to handle complex consent management needs. It allows businesses to manage the entire lifecycle of consent, from collection and updates to revocation. CGP is designed to ensure compliance with data protection laws while providing transparency and control to data principals.
• Cookies Manager: This tool helps businesses handle cookie consent in a compliant and user-friendly way. With customizable cookie banners and deep integration with websites, the Cookies Manager ensures that businesses comply with cookie regulations while enhancing user experience.
• Inspect AI: Designed to be an AI-powered copilot for Data Protection Officers (DPOs), Inspect AI automates the assessment of digital journeys for privacy compliance. By identifying privacy gaps and generating compliance scores, it simplifies the often complex task of staying aligned with data protection regulations.

These solutions represent a holistic approach to managing consent and data privacy, addressing the core requirements of the DPDPA while providing businesses with the tools they need to stay compliant without overwhelming their resources.

How can a DPO conduct a Gap Analysis?

Is my organization privacy-first? Does my organization have the tech infrastructure for DPDP compliance and handle data privacy requests? Everything from data collection to monitoring to updation is not a one-time exercise that cane be done and forgotten for good.

Conclusion

The Digital Personal Data Protection Act marks a significant shift in how personal data is handled in India. Organizations aiming for compliance must look beyond traditional data protection measures and adopt comprehensive DPDP solutions that include robust consent governance, automation of data processing records, stringent security measures, and sector-specific compliance tools.

By ensuring that your DPDP solution incorporates these must-have features, you can effectively navigate the complexities of data protection laws while building trust with data principals and regulatory authorities alike.

FAQs: Things to Keep in Mind Before Integrating a DPDP Solution

1. What are the key regulatory requirements companies need to be aware of before integrating a DPDP solution?
   Before integrating a DPDP solution, ensure that the platform aligns with the specific requirements of the DPDPA. Additionally, sector-specific regulations like those from the RBI or IRDAI might necessitate tailored consent management, data storage protocols, and compliance audits.
2. How can companies ensure the DPDP solution integrates well with their existing tech infrastructure?
   Make sure the DPDP solution you choose can integrate seamlessly with your existing systems such as CRM platforms, HR databases, and other data-processing systems. API compatibility is a critical factor for ensuring smooth integration without major system overhauls.
3. How will the solution handle multi-language consent notices and communication?
   For businesses with diverse language needs, ensure the DPDP solution supports multilingual capabilities. Consent notices must be presented in languages that your user base understands, and the translations should preserve the legal and contextual clarity of the original content.
4. What security features are built into the DPDP solution?
   Look for security features like encryption (both in transit and at rest), tamper-proof data storage, and robust audit trails. Make sure that the platform adheres to high security standards such as SHA-256 encryption and has clear protocols for handling data breaches.
5. How do companies ensure compliance with future regulatory changes?
   A good DPDP solution should be adaptable and regularly updated to meet evolving regulatory requirements. Make sure the vendor offers continuous updates and support to keep your system compliant with both current and upcoming regulations.
6. Will the DPDP solution provide real-time monitoring and reports?
   Real-time reporting and compliance dashboards are essential for monitoring your data protection efforts. These tools help identify potential compliance gaps and ensure that you are meeting legal deadlines for processing data requests and maintaining records.
7. What is the total cost of ownership for a DPDP solution?
   Beyond the initial setup, consider the long-term costs, including licensing, ongoing support, and updates. Ensure that the solution offers a clear return on investment by reducing compliance risks, saving manual effort, and enhancing data protection efforts.
8. What is a consent artifact?
   A consent artifact refers to a digital record of an individual’s data which is maintained. It acts

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