How Can Data Room Significantly Reduce Your Legal and Security Risks

Whether it is due diligence of multi-million dollar M&A transactions or pitching business plans to potential investors, virtual data rooms seem to be involved in every other transaction. That’s mainly because they are more secure than many other data management tools and simplify the communication process.

One thing that not many people know is that online data room software also minimizes legal risks. That said, a virtual data room solves the compliance issue for many companies. For example, businesses are required to have data management tools as per regulations of ISO, and all high-quality, secure data room services are ISO certified.

This is just one example of legal compliance, and this article is all about how virtual data room software minimizes legal and security risks for businesses. Let’s start with the basics of data rooms.

What is online data room software?

Virtual or online data rooms are secure, certified, cloud-based digital document repositories for businesses, government institutions, and professionals to store their store business or personal documents, images, digital books, videos, or other storable intangibles.

Virtual data rooms are not ordinary data storage platforms; they are data management solutions with advanced virtual collaboration and deal management tools. Every virtual data room is certified and has built-in communication tools that you can employ for online meetings, group chatting, live Q&As, real-time polls, and one-to-one communication.

The deal management tools in virtual data rooms assist companies in undertaking unusual business transactions that may include asset sale and purchase, fundraising, initial public offerings, mergers, acquisitions, joint ventures, and real estate deals.

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How virtual data rooms reduce security and legal risks?

Data rooms have multiple security layers that protect your business data in different ways and at every step. Here is how.

1. Secure data backup

The data security process starts with certified virtual data room providers. These vendors have premium-quality data servers that guarantee 99.5% uptime. In addition to it, any high-quality service provider maintains multi-location data servers for data backup, ensuring your data is safe from natural disasters like fire, floods, etc. In fact, even if you accidentally delete or lose any document, there are multiple backup copies on different servers.

2. Data room protection

When it comes to data room security, the protection starts with two-factor authorization. This feature is more common in data rooms, and it makes sure that any user logs in after entering the correct password and a temporarily generated code (sent to the user’s mobile number or email address).

Depending on data room services, you can use the remote device purging feature to remove and purge any suspicious or stolen data room devices. If the administrator feels that a device logged into the VDR is either hacked or stolen, it can immediately purge all VDR documents and delete the device from the data room.

Audit logs or reporting tools are a wonderful feature to monitor the in-room activities. What your users do in the data room, which files they mostly access, or how much time they spend in the data room — you can get all the minute-by-minute details.

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3. Document security

In addition to data room security, VDRs have more protection for the files stored in them. For instance, any standard virtual data room software gives the administrator 100% control over data files. That said, the administrator can define access settings and limitations for every single data room user. Anyone can be restrained from performing a specific activity (downloading, editing, saving, or printing) on any document.

Any user can protect their documents via dynamic watermarks. Watermarks, when added to documents, can easily trace the changes made in them and settle copyright claims.

Similarly, the file tracking feature is a great way to track the current status of your document. It gives you details on all actions performed on the file and how many users are using that file now. Most importantly, you can revoke users’ access to your document whenever you want.

Although fence view mode is a rare feature in data rooms, it is a really useful one. When you activate fence view on any document, a user cannot perform any activity on that file. Nobody can scan, edit, save, download, alter, or photograph it.

4. Legal compliance

For modern-day businesses, the management of digital data is regulated by international and local authorities. For example, businesses in different countries are required to follow ISO data management practices.

Similarly, financial institutions operating in the United States are legally obligated to follow FINRA’s regulatory guidelines for electronic data management. Apart from that, GDPR, SSAE 16, HIPAA, and SOC2 compliance is also mandatory in different regions.

All key players in the virtual data room industry are ISO certified, and most of them also comply with HIPAA, SOC2, SSAE, GDPR, etc. That means using data room software takes off the legal burden from your shoulders.

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Final words

Online data room software provides maximum protection to your important business data at all stages of data storage and sharing. It provides secure data backup, sensitive data protection, complete document security with fence view, file tracking, and many other features.

And on top of that, HIPAA, GDPR, SOC2, SSAE, FINRA, and ISO compliance makes sure that using data rooms, you can easily avoid any compliance woes.

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