The use of AI contract review software is now helping companies create contracts more efficiently and effectively. In recent years, there has been an increased demand for virtual data rooms. This is because VDRs offer numerous benefits to businesses.

Since its introduction in 2018, the General Data Protection Regulation has introduced new standards that govern the processing of personal data.

In this article, you will discover why virtual data rooms are crucial for data protection in 2021.

What is a Virtual Data Room?

Businesses that have critical and sensitive information such as financial transactions and intellectual property items need to find a secure yet easy to access location. This is where virtual data rooms come in handy. Commonly known as VDR, a virtual data room is an online database that companies use to store and share sensitive information easily and securely.

Virtual data rooms are used to facilitate different activities including M&A transactions, IPO, fundraising, audits, IP management, strategic partnerships and many more. In M&A transactions, the seller of the business needs to provide detailed information regarding the business to prospective buyers and its advisors. This is to make disclosures against warranties and for due diligence inquiries.

With the introduction of virtual data rooms, sellers can upload huge amounts of documentation into a secure online environment. Buyers are now able to locate specific information with ease, making the process quick and effective. Plus, it allows access to multiple viewers who can be involved in the process at a time.

General Data Protection Regulation

GDPR is the main data protection legislation in the European Union, that aims to bring harmony to data protection laws across EU member states. The GDPR contains fundamental principles of successful processing of personal data.

According to the GDPR, personal data needs to be processed fairly, lawfully and in a transparent manner. In virtual data rooms, personal data may include information about the contractors, seller’s employees, customers, clients, and contractors.

Hence, both sellers and buyers should comply with the GDPR with regards to data protection. Virtual data rooms are very crucial for data protection and in keeping with the GDPR.

Below are 4 good reasons why virtual data rooms are crucial for data protection in 2021.

  • Complies with International Regulations

If you intend to make an international deal or transaction, you need to comply with regional regulations such as the GDPR, HIPAA and CCPA.

The General Data Protection Regulation requires companies that disclose contracts and other agreements to adhere to the data protection rules to complete their due diligence successfully. It also requires protection of the subject’s vital interests, rights, and freedoms.

Virtual data rooms ensure this by allowing companies to process data subject lawfully and in a transparent manner. With the virtual nature of these data rooms, sellers engaging in corporate transactions will be able to limit disclosure of documents to protect the personal data of the subjects.

  • Excellent Security

VDRs are considered more secure than other systems. This is because the owner has more control over the information, and they restrict access to the documents and what the parties involved can do with the files. If a client is given access to one virtual data room, they cannot access another.

As the owner, you have the right to revoke document access and you can also track and record what different parties are doing in the data room. This enhances security, accountability and simplifies record-keeping.

This is important for GDPR compliance since it requires that data should be processed in a way that ensures security. It also requires that companies and owners of virtual data rooms should use the right organisational measures and to prevent unlawful and unauthorised processing that may to data loss, damage, or destruction.

  • Improves Due Diligence

Both sellers and buyers must exercise due diligence during a transaction to lower the chances of any unexpected and unpleasant events. Multiple parties need to perform their due diligence, including reviewing the documentation and accessing the potential risks.

A virtual data room comes in handy when attempting to facilitate a seamless and effective due diligence process. It allows for investors or purchasers to access relevant information without necessarily meeting face to face with the seller.

VDR allows each party to perform its risk assessment in a controlled environment. This ensures that the transaction complies with the GDPR rule of processing data in a fair, lawful, and transparent manner.

  • Give Access to Investors from Anywhere

Unlike the traditional way of doing this, virtual data rooms make it possible for investors to gain access to the documents anywhere they are. With this, VDRs matter for data protection come 2021 because GDPR applies to businesses regardless of whether they process data in the European Union.

Nonetheless, EU and non-EU bidders who want to access data in virtual data rooms are subject to EU data protection laws. The GDPR requires that personal data should not be transferred to other countries without the right safeguards put in place. When transferring data outside the EEA, the seller must use a valid transfer system.

This is because crucial information and programs may be under potential threats. However, secure data rooms will ensure data privacy during the transaction with a third party regardless of where they are.

  • Increased Transparency

Transparency is a fundamental component of any transaction, especially those done online. According to the GDPR, the processing of personal data should be done fairly and transparently.

In a virtual data room, you will be able to understand your investors and clients better. This is because you can track the activities regarding the document that you have given them access to. Once you grant access to a document, you will know when it is reviewed and how frequently.

This increases transparency and you will be in a better position to determine the level of interest of the client or investor.

Conclusion

When it comes to data protection, a lot of benefits can be accrued from virtual data rooms. This is especially true in terms of compliance with GDPR. With that said, it is advisable for companies that implement virtual data rooms to comply with the GDPR rules to ensure data protection and due diligence.