How DPDPA Impacts Financial Institutions: Compliance Strategies and Challenges

Sameer Ahirrao -

The Digital Personal Data Protection Act (DPDPA) 2023 marks a significant shift in how personal data is handled across industries in India, and financial institutions are at the heart of this transformation. Banks, NBFCs, insurance firms, and fintech platforms routinely process massive volumes of sensitive personal data, making them key stakeholders in the data protection landscape.

In this blog, we explore how DPDPA impacts financial institutions, the compliance strategies they need to adopt, and the challenges that lie ahead.

Why DPDPA Matters for Financial Institutions

Financial institutions collect and process data such as Aadhaar card numbers, income details, bank account information, transaction records, and biometric identifiers. Under the sensitive personal data or information (SPDI), this qualifies as "personal data", and in many cases, "sensitive personal data".

Key provisions of the DPDPA that impact financial institutions include:

  • Consent-based processing: Institutions must obtain clear, informed, and specific consent from individuals for data processing.
  • Data Fiduciary responsibilities: As Banks and financial entities collect data of their customers, they shall be Data Fiduciaries, which carry obligations like ensuring data accuracy, implementing safeguards, and enabling data principal rights.
  • Children’s data: Extra safeguards must be in place for data belonging to children.
  • Cross-border data transfer: DPDPA allows data transfers outside India however, restrictions on certain countries and territories may apply through government notifications. Institutions must keep a track of such notifications.
  • Data principal rights: Individuals can request access, correction, and erasure of their data, creating operational implications for financial entities.

Key Compliance Strategies for Financial Institutions

To adapt to DPDPA’s framework, financial institutions should take a proactive, structured approach. Here are key strategies:

1. Data Inventory and Classification: Map all data flows, from collection to deletion, and classify data by sensitivity and purpose. Understand where customer data is stored, how it's processed, and by whom (including third parties).

2. Consent Management Framework: Implement a consent architecture that tracks and honors user preferences. Consent should be explicit, granular, revocable, and stored for auditing purposes.

3. Update Privacy Notices and Disclosures: Revise privacy policies and customer agreements to ensure transparency. Notices should be clear, multilingual, and aligned with DPDPA guidelines.

4. Empower Data Principal Rights: Set up mechanisms for users to access, correct, or delete their personal data. Establish secure self-service portals or digital request mechanisms.

5. Third-Party Risk Management: Ensure that vendors, payment partners, and outsourced service providers also comply with DPDPA. This may involve updating contracts and conducting privacy audits.

6. Incident Response and Breach Notification: Design a data breach response plan with clear roles, timelines, and communication workflows. Under DPDPA, breaches must be reported to the Data Protection Board and the Data Principals involved immediately.

7. Data Protection Officer (DPO) and Governance: Appoint a DPO, especially if the institution qualifies as a Significant Data Fiduciary.

Challenges on the Road to Compliance

1. Legacy Systems and Data Silos: Many banks operate on outdated IT infrastructure, making it difficult to track data across systems and maintain audit trails.

2. Volume and Variety of Data: The scale of data collected daily by financial institutions makes real-time compliance challenging, especially for consent and data access requests.

3. Balancing Privacy with Innovation: Fintechs and banks rely on data-driven models for personalization, credit scoring, and fraud detection. Striking a balance between privacy and innovation will be a complex task.

4. Vendor and Partner Ecosystems: Outsourced call centers, KYC providers, and API-based platforms also handle personal data. Ensuring they comply with DPDPA adds another layer of complexity.

5. Regulatory Overlaps: Financial firms already comply with RBI, SEBI, and IRDAI regulations. Harmonizing DPDPA with these frameworks requires nuanced legal interpretation and alignment.

How Ardent Privacy Helps Financial Institutions Comply with DPDPA

Ardent Privacy offers a centralized, AI-powered privacy management platform designed to simplify and accelerate compliance with privacy laws like DPDPA. Here's how it supports financial institutions:

1. Automated Data Discovery & Classification: Quickly identify and classify sensitive personal data across structured and unstructured sources including emails, file systems, databases, and cloud apps which is a foundational step for DPDPA readiness.

2. Consent and Preference Management: Ardent provides a consent management module that enables organizations to track, store, and respect customer consent preferences with full audit trails.

3. Data Principal Rights Fulfilment: Enable fast and secure fulfillment of access, correction, and deletion requests. The platform streamlines intake and response mechanisms with customizable workflows and dashboards.

4. Risk Assessments and DPIAs: Conduct Data Protection Impact Assessments (DPIAs) and privacy risk evaluations using pre-built templates tailored for the financial sector.

5. Third-Party Risk Monitoring: Monitor and assess the privacy posture of vendors and partners, ensuring data sharing agreements and contracts align with DPDPA obligations.

Conclusion

The DPDPA is not just a compliance mandate; rather , it's a transformation into how financial institutions manage and protect consumer trust. With high data stakes, complex ecosystems, and increasing regulatory scrutiny, financial firms must prioritize privacy-by-design.

Ardent Privacy acts as a strategic ally in this journey by offering the tools, intelligence, and automation needed to operationalize DPDPA compliance at scale. Financial institutions that move early and decisively will not only reduce risk but also strengthen their competitive position in a privacy-conscious market.

About Ardent Privacy

Ardent’s mission is to help enterprises implement meaningful security and privacy programs aligned to their business mission, building trust and protecting data assets. Ardent’s technology “TurtleShield” is a holistic software platform that empowers enterprise security, legal, and data teams to implement and manage data privacy within the organizations with rapid data asset visibility and actions to enable privacy compliance, govern AI risk, meaningful data protection, and reduce cost of compliance and data breaches. Our unique and patented ML/AI-powered technology helps organizations comply with evolving privacy and AI regulations and accelerates adoption of AI technologies. Ardent offers a low code platform to automate Privacy & AI governance, rapid discovery of data assets and consent management with regional focus for global regulations.