Compliance glossary
Definition

Encryption at Rest

Protecting stored data with cryptographic controls so that it cannot be read by anyone without the decryption key.

What it means.

Encryption at rest refers to applying cryptographic controls (typically AES-256 in modern systems) to data that is stored on disks, databases, backup media, mobile devices, and cloud storage. The FTC Safeguards Rule requires encryption of customer information at rest under 16 CFR 314.4(c)(3), unless the firm's Qualified Individual approves a written exception with compensating controls. Encryption is enforced at the storage layer, not at the file level, which means it survives copy operations within the same encrypted system.

Why it matters for CPA firms.

Without encryption at rest, a stolen laptop or a breached cloud storage account exposes raw client data. With encryption at rest, the same incident is far less likely to trigger a notifiable breach because the data is unreadable. Modern services like Microsoft 365 and Google Workspace encrypt by default; legacy on-premises file shares often do not. The gap is most common on local servers, USB drives, and personal devices.

Relevant regulations.

  • 16 CFR 314.4(c)(3)
  • IRS Publication 4557
  • State Breach Notification Laws (encryption safe harbor)

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