A virtual data room (VDR) is an online platform where businesses securely store and share sensitive documents during mergers and acquisitions, legal disputes, financial audits, and other complex operations.
When choosing a virtual data room provider, security is the name of the game. A breach leads to financial losses, legal headaches, and reputational damage. Therefore, choosing a solution with strong data protection features is crucial.
In this article, we cover essential security measures to look for in data rooms, guide you in evaluating VDR security, and recommend top providers for protecting high-stakes transactions.
Why security is critical in a virtual data room
Security is essential in a data room because the success of a deal depends on the confidentiality and integrity of the sensitive information shared. Therefore, software providers must adhere to the highest security standards due to their sensitive nature, especially in the finance, legal, and healthcare sectors.
In the finance industry, for example, inadequate virtual data room security facilitates insider trading and fraud. Similarly, the unauthorized disclosure of privileged communications compromises legal strategies and client trust in legal contexts. In healthcare, breaches violate patient privacy regulations like HIPAA, resulting in significant penalties.
Health and finance sectors the most vulnerable to cyber attacks – Security – CRN Australia
As businesses increasingly rely on digital solutions for transactions and data storage, the number of cyber threats and data breaches has escalated. High-stakes transactions often attract malicious actors seeking to exploit vulnerabilities in data protection systems. A single breach jeopardizes critical negotiations and exposes proprietary information, putting organizations at a significant competitive disadvantage.
Considering all these factors, companies must prioritize virtual data room security to protect sensitive information and maintain compliance.
Top 3 data rooms
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Essential security features to look for in a VDR
To protect confidential documents effectively, you should know which mechanisms make virtual data rooms secure. So, here are key VDR security features to consider when choosing a solution:
1. Data encryption
Data room providers use robust algorithms to protect sensitive data at rest and in transit. Here is a detailed overview of how it works in both scenarios:
Data at rest
This is information stored on servers or databases within a virtual data room. Providers encrypt it through the following mechanisms:
- VDR encryption process. When uploading data to storage, the platform encrypts it using the AES-256 algorithm. In other words, it converts the original data into an unreadable format known as ciphertext. Thus, only authorized users with the appropriate decryption keys can access the original documents.
- Key management. Providers securely generate, distribute, store, and revoke encryption keys to protect sensitive documents. They implement stringent access controls and auditing measures, ensuring that only authorized users can access the keys.
- Robust data protection. With 2256 possible combinations, AES-256 encryption provides an impenetrable barrier against cyber attacks and unauthorized access.
- Regular audits and compliance. Providers undergo regular security audits to ensure virtual data room compliance with industry standards and regulations.
Data in transit
This is information shared between users, devices, or networks. Providers encrypt it through the following mechanisms:
- Transport Layer Security. This encryption mechanism secures data as it travels over the internet. It encrypts documents and maintains their integrity by using checksums and digital certificates to verify the authenticity of the sender and the recipient.
- End-to-end encryption. This technology encrypts data on the sender’s device until it reaches the intended recipient. Thus, even if someone intercepts documents during transmission, it remains unreadable without the correct decryption key.
- Authentication and integrity checks. Only authorized users can access sensitive information within a data room by verifying their identities through secure authentication. Additionally, the platform performs data integrity checks to confirm that information remains accurate and unaltered during transmission.
- Multi-factor authentication. This authentication requires users to provide two or more verification factors before gaining access to the system, significantly reducing the risk of unauthorized access.
2. Two-factor authentication
After entering their password, data room users must provide a second form of identification, such as a code sent to their mobile device or a fingerprint scan. This extra step reduces the risk of unauthorized access, as even if someone acquires a user’s password, they would still need to confirm a second component to access data rooms.
3. Access controls and user permissions
Data room administrators can set specific permissions for each user or document. By assigning access levels — such as view-only, download, or edit — admins restrict users to the data relevant to their role. It prevents unauthorized actions, mitigates the leak risks, and maintains a clear audit trail of document interactions.
| ❓How do user permissions work? During the due diligence process, the buyer’s legal team might have full access to legal documents for review and editing. However, financial advisors may only be able to view but not download financial records. Meanwhile, external consultants may have view-only access to specific documents relevant to their assessment. Each party gets the information they need without exposing sensitive data unnecessarily, maintaining confidentiality and compliance throughout the due diligence process. |
4. Audit logs and activity tracking
The software monitors and tracks all user activity within data rooms. These audit logs capture who accessed specific files, when they did so, and how long they interacted with the documents. This detailed record-keeping helps administrators monitor document activity, detect unusual or unauthorized behavior, and ensure compliance with internal and regulatory requirements.
Activity tracking feature
5. Data backup and recovery
VDR data backup and recovery processes ensure data integrity, availability, and resilience in the face of hardware failures, cyberattacks, or human errors. These systems protect sensitive data and guarantee that the platform remains operational.
Providers regularly perform automated backups to protect all uploaded data, even if a malfunction or unexpected event occurs. These backups are stored in secure, geographically distributed locations, often across different data centers, to prevent a single point of failure.
While backups safeguard data, a disaster recovery plan ensures rapid response to critical failures. It involves the implementation of a well-structured plan that includes the following:
- Redundancy and replication. Data room platforms use redundant servers and replication methods that duplicate data across multiple servers or locations. If one server fails, the system automatically switches to a backup server for uninterrupted service.
- Failover systems. Providers implement failover protocols that automatically transfer data operations to a backup system during a failure. It allows users to access a data room without disruption.
- Recovery time objective and recovery point objective. Effective disaster recovery strategies focus on minimizing the time it takes to recover data and the maximum acceptable data loss. Data rooms optimize these metrics for swift recovery and minimal disruption in case of an incident.
6. Compliance with international security standards
Compliance strengthens virtual data room security and reflects providers’ commitment to industry best practices in information protection.
Reliable virtual data rooms comply with the following key standards:
- SOC 2. This compliance framework focuses on five key areas: security, availability, processing integrity, confidentiality, and privacy. Certified data rooms undergo third-party audits to meet strict data protection standards.
- ISO 27001. This global standard for information security management systems requires a systematic approach to protecting sensitive data, including risk assessment and management.
- GDPR. This law regulates how businesses in the EU collect, process, and store personal data and enforces strict rules on user consent, data access, and breach notifications.
- HIPAA. This act sets U.S. standards for protecting patient health information through strict access controls and audits, ensuring only authorized personnel can access sensitive data and that any handling of patient records is thoroughly monitored.
These multi-layered security measures create a protected environment for maintaining the confidentiality, integrity, and availability of sensitive data in virtual data rooms.
How virtual data rooms prevent data breaches
According to Cisco, some of the most common cyber threats include malware, phishing, and man-in-the-middle attacks. Fortunately, virtual data rooms have all the right tools to protect documents from these risks.
1. Malware
Malware involves various malicious software types, including ransomware, spyware, viruses, and worms. It typically infiltrates a network through user actions, such as clicking on a malicious link or opening a harmful email attachment.
Data room solutions
- Robust encryption. Providers encrypt sensitive data at rest and in transit, making it unreadable to unauthorized users and malware.
- Regular security audits. Frequent audits ensure the system is up-to-date with the latest security patches and vulnerability assessments.
- Real-time threat detection. Advanced data rooms monitor for suspicious activity and quickly isolate or remove infected files to prevent the spread of malware.
| 👁️🗨️In 2023, 6.06 billion malware attacks were detected globally, mainly in Asia-Pacific. The most frequent types included worms, viruses, trojans, ransomware, and backdoor attacks. |
2. Phishing
Phishing involves fraudulent communications to trick users into revealing sensitive information or installing malware.
Data room solutions
- User training and awareness. Some vendors offer training resources to help users identify and avoid phishing attempts.
- Two-factor authentication in VDR. A secure data room reduces the likelihood of unauthorized access by requiring a second verification method, even if credentials are compromised.
- Email filtering systems. Built-in filtering solutions detect and block phishing attempts before they reach users.
| 🔊Real-life story Lithuanian hacker Evaldas Rimasauskas tricked Facebook and Google into transferring over $100 million within two years. Rimasauskas sent fraudulent emails posing as a legitimate vendor, using a forged email domain similar to that of a real business partner. He created convincing fake invoices and contracts, leading employees at both companies to process payments. As a result, Facebook and Google unknowingly wired money to Rimasauskas’s accounts. The scheme was uncovered when discrepancies in financial records were noticed. |
Preventing data breaches in VDRs is easier when providers implement the right security measures and practices.
3. Man-in-the-middle attack
Man-in-the-middle attacks occur when attackers intercept communications between two parties, enabling data theft or manipulation.
Data room solutions
- Transport Layer Security. TLS encrypts data transmitted over the internet and ensures it remains secure and unreadable even if intercepted.
- Secure network configurations. Online data rooms employ protected server configurations and avoid reliance on public Wi-Fi networks, minimizing the risk of interception.
- End-to-end encryption. Since providers encrypt data from the sender’s to the recipient’s device, attackers can’t access information during transmission.
These protective measures ensure the security and integrity of confidential information.
2024 Cybersecurity Facts and Statistics
Common VDR vulnerabilities and how to avoid them
Virtual data rooms are now the most secure tools for securely storing and sharing sensitive information. However, they are not immune to vulnerabilities. So, here are some common flaws and helpful tips for mitigating risk:
1. Weak passwords
Weak passwords are easy to guess or crack, which allows unauthorized access to sensitive data.
✔️ Implement robust password policies that require complex combinations of letters, numbers, and symbols. Encourage password managers to help users create and store strong passwords securely.
2. Unencrypted file sharing
Transmitting files without encryption exposes document security weaknesses while sharing.
✔️ Choose a secure data room that offers end-to-end encryption for data at rest and in transit.
3. Poor user access control
Inadequate user access controls lead to unauthorized individuals accessing confidential documents.
✔️ Choose a VDR with granular permission settings, allowing administrators to control who can view, edit, or share documents. Regularly review user access permissions and revoke access when necessary.
4. Lack of activity monitoring
Identifying and responding to suspicious behavior is nearly impossible without audit trails and activity monitoring, which enhance visibility into user actions and detect potential security threats.
✔️ Select a platform that provides comprehensive activity logs and monitoring tools to track who accessed which documents and when.
5. Insufficient data backup and recovery options
Data loss occurs due to system failures or cyberattacks, making critical information unrecoverable.
✔️ Ensure a provider has robust data backup and recovery solutions. Regularly back up important documents and test the recovery process to ensure data can be restored if needed.
These tips can help secure virtual data rooms and protect sensitive information throughout the transaction process.
Industry-specific security needs
Different industries have unique security needs. Fortunately, virtual data room providers can meet them. Whether it is handling sensitive financial data, legal documents, or patient information, the software guarantees data security and regulatory compliance across sectors.
Here are a few examples of how online data rooms address industry-specific requirements:
1. Finance and M&A transactions
Need: To protect sensitive financial information and client details
Data room solution: Providers implement robust encryption, strict access controls, and real-time audit trails to prevent unauthorized access and maintain VDR security in finance. Additionally, they ensure compliance with regulations such as the Sarbanes-Oxley Act, which mandates strict security protocols and thorough record-keeping.
👁️🗨️In 2024, the average cost of a data breach in the financial industry worldwide hit $6.08 million, rising from $5.90 million the year before.
2. Legal industry and litigation
Need: To protect privileged documents and sensitive case information.
Data room solution: VDR security in legal industry is provided through role-based permissions, watermarking, and redaction tools. These measures maintain confidentiality and compliance with regulations governing client data.
👁️🗨️As of May 2024, at least 21 law firms had reported data breaches to state attorneys general offices. In comparison, 28 breaches were reported in 2023, 33 in 2022, and 38 in 2021.
3. Healthcare and HIPAA compliance
Need: Protecting patient data and medical records to comply with HIPAA regulations.
Data room solution: Providers offer encryption, secure access controls, and detailed audit trails to monitor access to sensitive information. These virtual data room solutions ensure the secure sharing of medical documents among authorized parties, maintaining patient confidentiality.
👁️🗨️As of August 31, 2024, there were 491 data breaches involving 500 or more records, with a total of over 58.6 million records breached.
When choosing a solution, detail industry-specific needs to understand what virtual data room security measures a provider can offer.
How to evaluate the security of a virtual data room
Here is a step-by-step process to help assess the security of a specific data room solution:
1. Check for security certifications
Ensure a provider has security certifications indicating adherence to industry-standard security practices, such as ISO 27001, SOC 2, or GDPR compliance.
2. Review encryption standards
Verify the data room employs robust encryption methods, such as AES-256, to safeguard documents from unauthorized access.
3. Ask for demo access
Request a demo to explore the user interface and assess features like user permission settings and activity tracking.
4. Inquire about incident response protocols
Ask the provider about their incident response protocols to ensure they have a clear plan for addressing security breaches, including timely notifications and remediation steps.
5. Read user reviews and testimonials
Look for insights from other users for valuable information about their experiences with data protection and customer support from a specific data room service.
These steps help make a well-informed decision when selecting a secure data room.
Why are VDRs more secure than cloud storage and traditional data rooms?
Virtual data rooms, cloud storage, or physical data rooms are options for storing data safely. However, since all these solutions differ, it can be tough to determine which is best. So now, we compare these solutions’ security mechanisms to make choosing one easier. First, let’s evaluate these options based on the following general characteristics:
1. Security
- Virtual data rooms: VDR providers prioritize security, offering physical, virtual, and regulatory data protection mechanisms.
- Cloud storage: Although these solutions have sufficient data protection mechanisms, more is needed to protect the information needed for complex deals.
- Physical data room: Since security is only provided at the physical level, users may face many security risks.
2. Collaboration
- Virtual data rooms: The solution provides dozens of secure collaboration features, making it more versatile than cloud storage.
- Cloud storage: Collaboration is possible, but it has limitations as these platforms are designed to conduct large business deals.
- Physical data room: There are no opportunities for online collaboration and communication, which requires more time for deal-making.
3. 24/7 access
- Virtual data rooms: Being a SaaS product, data rooms are accessible 24/7.
- Cloud storage: Most cloud software solutions are available 24/7.
- Physical data room: Traditional data rooms are usually available during business hours or by appointment.
If a company has basic data storage needs without strict security requirements, cloud storage or physical data rooms may be suitable. However, for complex transactions, it’s best to use a virtual data room.
What are the most secure VDR providers?
Based on virtual data room security features, regulatory compliance, and user reviews, the most secure solutions include the following:
| Provider | Security measures | Compliance |
| 1. iDeals | 99.95% uptime fail-safe environment Real-time data backup Disaster recovery Multi-layered data encryption Granular permission settings Two-factor verification Time and IP-address restrictions Fence view Remote data wipe and shred | ISO/IEC 27001:2013 SOC 2 and SOC 3 GDPR HIPAA |
| 2. Intralinks | Geographically dispersed data centers User ID dissemination FIPS 197 standard encryption AES-256 key management protection Comprehensive audit reports Data-driven multi-factor authentication | ISO 27001 ISO 27701 GDPR E.U.-U.S. Privacy Shield Standard Contractual Clauses |
| 3. Datasite | Secure hosting on Microsoft Azure Cloudflare protection Separate data storage Secure file purging Strict data handling policies Regular security assessments | GDPR ISO 27001 ISO 27017 ISO 27018 ISO 27701 SOC 2 Type II |
| 4. Onehub | Intrusion detection systems Two-factor authentication Role-based permissions Object-level security Custom session timeouts Audit trails Complex passwords | HIPAA SSAE 16 PCI DSS Level 1 |
| 5. Donnelley Venue | Data encryption Client-managed encryption keys Multi-factor authentication Automatic watermarking Granular user permissions Symantec virus scanning | SOC 2 Type II HITRUST ISO/IEC 27001:2013 |
We recommend visiting the providers’ websites to learn more about their data security measures.
Conclusion
When evaluating virtual data room security, focus on several critical points. Firstly, robust encryption to protect sensitive data at rest and in transit. Secondly, well-defined user permissions to control access and ensure that only authorized individuals can view or modify sensitive information. Lastly, compliance with global security standards to maintain regulatory requirements.
We recommend requesting demos from virtual data room providers to compare data security solutions before choosing the platform that best suits your needs.