SOC 2 vs. ISO 27001 vs. GDPR: Which Compliance Framework Does Your Business Need?

TL;DR

For B2B SaaS startups, start with SOC 2 Type 2 as it aligns best with cloud security needs and is widely accepted globally. Add ISO 27001 later if regulated industries require it (~70% of work is already done). GDPR is mandatory for any company handling EU resident data and must be implemented alongside either framework.

When it comes to demonstrating trust and security, B2B SaaS startups often consider three major compliance frameworks: SOC 2, ISO 27001, and GDPR. Each of these frameworks serves a different purpose and caters to different regulatory and market requirements. But which one should your business prioritize? Let's break it down.

Understanding the Key Compliance Frameworks

SOC 2: Tailored for B2B SaaS Companies

SOC 2 is specifically designed for B2B SaaS companies that develop cloud-based applications. This framework focuses on five Trust Service Criteria: security, availability, processing integrity, confidentiality, and privacy.

SOC 2 is highly relevant because it assesses a company's internal controls over customer data security, change management, and application security. While the AICPA Trust Services Criteria do not explicitly require penetration testing, it is one of the most effective ways to assess, improve, and demonstrate an application's security, including vulnerabilities like privilege escalation, data segregation, and authentication mechanisms.

SOC 2 comes in two types:

• SOC 2 Type 1: Evaluates the effectiveness of security controls at a single point in time.
• SOC 2 Type 2: Assesses the effectiveness of these controls over a period (usually three months), making it more rigorous and credible.

For SaaS companies targeting U.S. clients, SOC 2 Type 2 is often a mandatory requirement and acts as a substitute for ISO 27001 in many cases.

ISO 27001: A Broad Framework for Information Security Management

ISO 27001 is a globally recognized standard for Information Security Management Systems (ISMS). Unlike SOC 2, it is not limited to SaaS companies; consulting firms, legal entities, and other businesses can also pursue certification.

ISO 27001 focuses on risk management across various business functions, such as IT, HR, procurement, and legal. It mandates an internal audit but does not specifically require penetration testing or extensive application security evaluations. This makes it more suited for organizations where risk is distributed across departments rather than being centered on cloud-based application security.

While ISO 27001 is highly respected, clients requesting it often require additional security measures for SaaS companies, such as annual penetration testing. For B2B SaaS companies, yearly penetration testing is one of the key security controls used to demonstrate application security in a SOC 2 report, so companies that opt only for ISO 27001 may face additional requests from customers expecting this validation.

GDPR: A Legal Obligation, Not a Certification

The General Data Protection Regulation (GDPR) is different from SOC 2 and ISO 27001 in that it is a legal requirement rather than a voluntary certification. Any company handling personal data of EU residents must comply with GDPR, making it a non-negotiable obligation.

GDPR requires businesses to implement privacy policies, data protection agreements (DPAs), and mechanisms for ensuring user data confidentiality. Compliance involves both engineering and legal efforts but does not require an official certification or external audit.

Which Compliance Framework Should Your SaaS Business Prioritize?

SOC 2 vs. ISO 27001: Which One is Better for SaaS Companies?

If your SaaS business must choose between SOC 2 Type 2 and ISO 27001 due to budget constraints, SOC 2 Type 2 is the recommended choice. It better aligns with SaaS security requirements and is more widely accepted in the U.S. market. Additionally, many European companies recognize SOC 2, even if they initially request ISO 27001.

However, if your company serves highly regulated industries (government, healthcare, defense), ISO 27001 may be necessary as it remains the preferred standard in these sectors.

Combining SOC 2 and ISO 27001

Typically for SaaS companies, ~70% of security controls overlap between SOC 2 and ISO 27001, so companies planning to obtain both within an 18-month timeframe should consider pursuing them together. This approach minimizes context switching, consolidates resources, and improves efficiency.

If obtaining both frameworks is uncertain within that timeframe, prioritizing SOC 2 Type 2 first is generally the best strategy.

GDPR: Mandatory for All

Regardless of SOC 2 or ISO 27001, GDPR compliance is mandatory for any company processing EU residents' data. Companies should ensure legal and technical compliance, including clear privacy policies and data protection measures.

Final Thoughts

For a SaaS business, SOC 2 Type 2 is often the best first step due to its strong alignment with cloud security requirements and its acceptance among U.S. and global clients. ISO 27001 is valuable but may be more relevant for companies dealing with highly regulated sectors. GDPR, on the other hand, is a legal requirement and must be implemented alongside any security framework.

By strategically selecting the right compliance framework, your company can maximize security credibility while optimizing resources.