If you are new to the world of finance then there will be much to learn about. The financial services market alone is expected to be worth $26000 billion within a year and the need for security is higher than ever before.
The internet has made business easier and faster to conduct but it has also raised the need for a new type of security. Hackers and cybercriminals make money by stealing information or extorting cash from individuals and businesses. It is this combination of new technology and modern crime that means the finance industry needs to have secure processes in place.
One of the ways that companies can keep their sensitive and important data away from hackers is to use data rooms. These secure virtual rooms allow records to be shared between clients and other authorized users while keeping the information safe.
Anyone working in finance should learn about data rooms and what their functions are.
What are virtual data rooms?
In the past when a company wanted to perform due diligence during a merger they would use a secure data room where all the necessary records would be kept. Only authorized people such as the seller, the buyer, and legal representatives would be allowed access.
The problem with these rooms is that they take up space, are costly to run, and create a lot of hard copy. The solution to this is the virtual data room.
Instead of having a physical environment where records are filed away, you can use a data room to store information in the cloud and allow it to be accessed remotely from anywhere in the world.
There are many reasons why a business should invest in cybersecurity and keeping documents out of the wrong hands is one of them. Virtual data rooms are routinely used in mergers & acquisitions where any leaks or data breaches could cause havoc with the transaction.
What are the features of a virtual data room?
A VDR will have a front end like any other piece of software and depending on which provider you choose there will be different levels of functionality. A typical data room will allow the owner to set up who can access the documents, what rights they have, redact information, and upload records by drag n’ drop.
Some features you might find on a virtual data room include the following:
- Unique watermarks
- Granular tracking
- Geo or IP restrictions
- Time controls
- Screen-only viewing
- Access control and recording
- 2 step verification
- Security against camera-based attacks
- Multilingual interface
These VDRs can track who looks at a record, when they looked at it, and for how long. If they download it a unique watermark will be placed on the document so hard copies can be traced back to a particular user.
Some of the features of a virtual data room in more detail
One of the main reasons to use a data room is to control who is allowed to view documents. Granular tracking lets the owner see exactly what those users are viewing.
This feature allows the owner to see what records are being looked at and for how long. The granular tracking feature lets the owner see which particular parts of a document seem to be important to the other party and can help greatly when looking to complete due diligence.
Time and IP controls
These features allow the owner to limit which IPs can access documents and also for how long. If you were controlling a data room, you may wish to limit the amount of time someone was able to view a particular document.
With so many devices being able to access the internet these days it is important to understand the ways you can boost IoT security. One nice feature of VDRs is the ability to make the records screen-only viewable. This means that they cannot be downloaded without the correct permissions which in turn reduces the number of hard copies that can get ‘lost’ or go missing.
The finance market is a truly global industry and virtual data rooms help transactions run smoothly by being available 24/7 every single day. However, this would be of no use if no one could understand how to use them and good VDRs now come with several languages for users to change to. Common languages would include many from Europe along with Japanese, Korean, and of course, Chinese.
What is the difference between a virtual data room and a cloud storage system?
You might think that a virtual data room sounds much like cloud storage and there are some similarities.
Virtual data rooms store records and information in the cloud, however, they should not be confused with cloud storage systems themselves.
A cloud storage system might be something like DropBox, for example. These storage systems allow for quick file sharing between individuals quickly and securely. They could be used to complete due diligence during an acquisition and they are extremely inexpensive.
A virtual data room is also cloud-based but has far more in-built security and other features. Of course, which VDR you choose will make a difference but many companies will operate to international security standards. Features include granular tracking which means you can see who views your documents, how often, and when it was looked at. You can visit Firmex.com to see how comprehensive virtual data room features can be.
The cons of using a virtual data room might include ease of use. VDRs tend to have more functionality than something like DropBox and so they may seem harder to use. However, the disadvantage of using a cloud-based storage system instead of a VDR is security. DropBox itself was hacked back in 2012 and nearly 70 million passwords were stolen.
Virtual data rooms are simply more secure with more functionality than a standard cloud storage system and when you are dealing with a multi-billion dollar merger, you need full GDPR compliance.
It can also affect mergers and acquisitions…
Using a virtual data room in a merger or acquisition
Due diligence must be performed during any M&A transaction. Indeed, data rooms used to be known as due diligence rooms, although you can now see this is largely all being done virtually.
One of the most important things to look for when making an acquisition or merging is to check that company’s security. By acquiring a company that has had an unknown data breach you could be heading for huge fines, as Marriott International discovered after acquiring Starwood.
Yahoo also had hundreds of millions wiped from their valuation before being acquired by Verizon for a huge data breach that affected billions of users.
Virtual data rooms are ideal for sellers and buyers during M&A transactions. However, the buyer should also be checking what data security they have in place.
Anyone working in certain fields in the finance world should understand what a data room is and why it is used. Their main purpose may be for mergers & acquisitions but modern VDRs are now being used for much more. They can be used to help an initial public offering or IPO run smoothly or even for project management.
The main purpose of data rooms is to allow only authorized users to access controlled data and keep it safely out of the way of anyone else. Using a good VDR will boost the trust your clients have in you and avoid any nasty fines or bad PR.
Danis Woods in Businessman, investment banker and stock exchange traders. On the same time he loves writing financial blogs to shed lights on different aspects that new and existing businessman are not aware of.