Regulatory compliance isn't optional—but understanding what you actually need is harder than it should be. Here's the practical breakdown of GDPR, HIPAA, and SOC 2 for data room users.
Compliance. Even the word feels heavy.
When you're choosing a virtual data room, compliance requirements can feel like a maze of acronyms and regulations that nobody fully explains. GDPR. HIPAA. SOC 2. ISO 27001. FedRAMP. The vendor says they're "compliant"—but compliant with what, exactly? And do you even need all that?
I've spent years helping companies navigate this landscape, and here's what I've learned: most people overcomplicate compliance by trying to meet every possible requirement, while others undercomplicate it by assuming their vendor handles everything.
The truth is somewhere in between. Let me break down what you actually need to know.
These three frameworks cover the majority of compliance requirements for data room users. Let's understand each one.
The General Data Protection Regulation is a European Union law that governs how organizations handle personal data of EU residents. It doesn't matter where your company is based—if you process data of anyone in the EU, GDPR applies to you.
Lawful Basis for Processing: You must have a legitimate reason to collect and process personal data. In a data room context, this is usually "legitimate interest" (necessary for a transaction) or explicit consent.
Data Minimization: Only collect and store personal data that's actually necessary. Don't dump every employee record into a data room "just in case."
Right to Access and Deletion: Individuals can request copies of their data or ask for deletion. Your data room provider must support these requests.
Data Breach Notification: If personal data is compromised, you have 72 hours to notify relevant authorities. Your VDR's audit trails become critical evidence.
Data Processing Agreements (DPAs): Any third party handling personal data (including your VDR provider) needs a formal DPA specifying responsibilities.
Cross-Border Transfer Restrictions: Personal data can only be transferred outside the EU under specific conditions (adequacy decisions, standard contractual clauses, etc.).
This is where it gets serious:
| Violation Category | Maximum Penalty |
|---|---|
| Minor violations (record-keeping failures, etc.) | €10 million or 2% of global annual revenue |
| Serious violations (unlawful processing, rights violations) | €20 million or 4% of global annual revenue |
These aren't theoretical numbers. In 2023 alone, Meta was fined €1.2 billion for GDPR violations. Amazon's €746 million fine in 2021 remains the largest to date.
Your VDR provider should offer:
The Health Insurance Portability and Accountability Act establishes standards for protecting sensitive patient health information in the United States. If you handle Protected Health Information (PHI), HIPAA applies.
Privacy Rule: Establishes standards for when PHI can be used or disclosed. Minimum necessary principle—only access what's needed for the specific purpose.
Security Rule: Technical, administrative, and physical safeguards for electronic PHI (ePHI). Covers everything from encryption to employee training.
Breach Notification Rule: Requires notification to affected individuals, HHS, and sometimes media following breaches involving unsecured PHI.
Business Associate Agreements (BAAs): Any vendor handling PHI must sign a BAA accepting HIPAA obligations.
Penalties scale with the level of negligence:
| Violation Level | Penalty Range (per violation) | Annual Maximum |
|---|---|---|
| Unknown violation (reasonable diligence) | $100-$50,000 | $25,000 |
| Reasonable cause (not willful neglect) | $1,000-$50,000 | $100,000 |
| Willful neglect, corrected | $10,000-$50,000 | $250,000 |
| Willful neglect, not corrected | $50,000+ | $1,500,000 |
Criminal penalties can include fines up to $250,000 and imprisonment up to 10 years for severe violations.
For HIPAA-covered transactions, your VDR must provide:
Here's where it gets tricky. If you're doing due diligence on a healthcare company, you may need access to information that's technically PHI—patient counts, treatment outcomes, billing data. Even de-identified data has specific HIPAA requirements.
Your VDR provider needs to understand this nuance. Generic "we're HIPAA compliant" claims aren't sufficient. You need specific capabilities for healthcare transactions.
SOC 2 (System and Organization Controls 2) is an auditing framework developed by the American Institute of CPAs (AICPA). Unlike GDPR and HIPAA, it's not a law—it's a voluntary certification that demonstrates security practices have been independently verified.
SOC 2 audits evaluate controls across five areas:
Security (Required): Protection against unauthorized access. This is the baseline that all SOC 2 reports cover.
Availability: System uptime and accessibility commitments.
Processing Integrity: Accurate, timely, authorized data processing.
Confidentiality: Protection of confidential information.
Privacy: Collection, use, retention, and disposal of personal information.
This distinction matters:
| Report Type | What It Covers | Limitations |
|---|---|---|
| SOC 2 Type I | Controls are properly designed at a point in time | Snapshot only—doesn't verify ongoing compliance |
| SOC 2 Type II | Controls operate effectively over a period (typically 6-12 months) | More rigorous; demonstrates sustained compliance |
Always ask for Type II. Type I reports are basically participation trophies—they say the vendor designed controls correctly, not that they actually follow them.
A typical SOC 2 report examines:
Look for:
Technically, nobody "needs" SOC 2—it's voluntary. But practically:
International standard for information security management systems. Common in European transactions, often required alongside SOC 2.
Required for cloud services used by U.S. federal agencies. If your transaction involves government contracts, FedRAMP authorization may be necessary.
Payment card industry standards. Relevant if your data room contains cardholder data (rare, but possible in retail M&A).
California's privacy laws, similar to GDPR but with some differences. Increasingly important for transactions involving California residents' data.
For publicly traded companies, SEC rules govern disclosure and document retention. Your data room may need to support specific retention requirements.
Here's a practical checklist for evaluating provider compliance:
| Provider | SOC 2 Type II | ISO 27001 | GDPR | HIPAA BAA | EU Hosting |
|---|---|---|---|---|---|
| Papermark | ✓ | ✓ | ✓ | On request | ✓ |
| Datasite | ✓ | ✓ | ✓ | ✓ | ✓ |
| Intralinks | ✓ | ✓ | ✓ | ✓ | ✓ |
| iDeals | ✓ | ✓ | ✓ | ✓ | ✓ |
| Ansarada | ✓ | ✓ | ✓ | ✓ | ✓ |
All major VDR providers meet baseline compliance requirements. Differentiation comes from ease of obtaining documentation, responsiveness on specific requirements, and geographic hosting options.
Your VDR provider being SOC 2 certified doesn't make you SOC 2 compliant. It means one piece of your compliance puzzle is in place. You still need your own controls, policies, and procedures.
Always request actual documentation. SOC 2 reports, ISO certificates, signed DPAs—if they won't provide it, that's a red flag.
Some vendors collect certifications like trophies. What matters is whether those certifications cover your actual use case and data types.
GDPR's data transfer restrictions are real. If you need EU hosting, verify that's actually where your data will reside—not just where the vendor has a sales office.
Using a compliant VDR doesn't eliminate your responsibilities. You still need to:
Here's my recommended approach to compliance in VDR selection:
What data will you store? Who will access it? What jurisdictions are involved? Don't overcomplicate—but don't assume, either.
Based on your answers, list the specific certifications and features you need. Share this with vendors.
Ask for SOC 2 reports, relevant certifications, and template agreements. Professional vendors provide this readily.
Don't just check boxes. Understand what you're getting and what gaps remain.
Keep records of your compliance evaluation. If questions arise later, this documentation demonstrates reasonable diligence.
Compliance frameworks exist to protect sensitive data. They're not bureaucratic obstacles—they're reasonable requirements for handling information responsibly.
For most transactions, you need a VDR with:
Healthcare transactions add HIPAA. Government transactions add FedRAMP. International deals may add ISO 27001 or country-specific requirements.
The good news: major VDR providers have invested heavily in compliance infrastructure. The certifications you need are probably available. Your job is to verify—not assume—that your specific requirements are met.
Take compliance seriously, but don't let it paralyze you. A good VDR provider makes this easier, not harder.