Regulatory compliance is always a hot topic. Whether governmental, cross-sector requirements or industry-specific regulations, there is no shortage of red tape governing businesses’ operations.
All firms have to comply with some degree of regulation – for instance, around the safety of their operations, or to ensure that their hiring policies follow requirements designed to ensure equal opportunities. In some sectors – like the food or financial services industries – the extent of the rules governing your processes and outputs can seem interminable.
Some regulation is industry-specific; for instance if you’re in the US financial services sector, you might be governed by one of the many agencies tasked with regulating the industry; in the UK the Financial Conduct Authority regulates financial services.
Other rules apply regardless of industry. In the UK, for instance, all advertising has to comply with rules set by the Committee of Advertising Practice and enforced by the Advertising Standards Authority, whether or not your firms is also governed by an industry regulator.
Like death and taxes, though, regulation is a non-negotiable element of corporate life. Whatever industry you’re in, or however large or small your business, there will be a legal requirement to follow certain rules.
Regulatory Compliance vs. Corporate Compliance
This need to comply with externally mandated regulations is distinct from the concept of corporate compliance, which tends to refer to a firm’s ability to follow its own rules and policies or to adhere to industry norms and best practices.
Clearly, adhering to internally-devised requirements is important to enable a degree of consistency and rigor in policy and procedure. But regulatory compliance represents a whole other level of obligations – one that is typically mandatory, and comes with significant potential penalties.
No wonder that businesses invest substantial time, money and resources into ensuring they are able to demonstrate compliance with the regulations governing their sector.
What Is Regulatory Compliance and What Does it Mean for Firms?
Regulatory compliance is multi-faceted, and can mean different things not just for different businesses, but for different elements of a single business.
- It can relate to your operations; the fundamental ways you run your business.
- It can mean that your marketing collateral and customer communications need to meet certain standards.
- It can also mean that you need to be able to evidence that the processes you have followed live up to expectations. It’s not just the end result that counts when it comes to regulatory compliance; the importance of compliance monitoring cannot be underestimated. Marketing collateral, for instance, should have a clear audit trail of reviews and approvals by someone designated to undertake compliance duties at your firm. Having comprehensive compliance reports to evidence your processes and checks is essential if you are ever subject to any form of external audit or compliance monitoring.
Why Is Regulatory Compliance Important?
Over recent years and decades, the volume of laws, regulations, industry standards and requirements has risen exponentially. Simply put, regulation touches every sector and every area of business in today’s corporate landscape.
As well as increasing the number of requirements you need to meet, the constantly changing nature of regulation makes it more important than ever that your company maintains a robust compliance program. Keeping track of current requirements and ensuring compliance across your organization is a significant challenge. It’s certainly not an area for complacence.
Regulatory compliance is a fundamental building block for your brand and corporate reputation. Trust is a huge consideration when it comes to successful brands; customers and clients choose to buy from companies they have faith in. An increasing focus on ethics, provenance and governance makes regulatory compliance an increasingly important element of corporate brand equity.
And of course, there are the cost implications of any failure to comply with your sector’s, country’s or other rules. Not only the costs of penalties and remediation, but the costs of rectifying any inadequate processes; of recalling non-compliant products or promotions; the indirect costs of the time taken on these actions; and the opportunity cost of lost sales due to reputational issues.
The risks of non-compliance with regulations are significant and wide-ranging. Failure to undertake compliance monitoring, or to have a robust compliance audit strategy, will undermine your brand and reputation. Most regulations are designed to protect either your business, your employees, your customers or in some cases, the public at large. Any failings put one or more of these at risk.
Conversely, meeting your obligations helps to keep your customers and employees from harm, reduces your costs and is shorthand for your corporate ethical standpoint, bolstering your brand and – hopefully – your revenues.
What happens if you don’t comply?
Firms that breach regulatory requirements can face significant fines, lawsuits or other financial penalties. In the worst-case scenario, regulators can ban firms from operating in certain markets, or altogether.
A 2018 article identified that firms were facing growing fines and lawsuits as a result of corporate data breaches, for instance, with the average cost per cyber breach jumping from $4.4 million to $7.2 million during 2017-2018.
Businesses can also have remedial action enforced upon them – for instance in the UK, the FCA can mandate that non-compliant financial promotions are removed from circulation.
The reputational repercussions of non-compliance with regulatory requirements can also be significant. Regulators tend not to be shy about publicizing transgressions, as a warning to other firms about the potential penalties; negative headlines can be an unwelcome side-effect of regulatory breaches.
Meet Your Regulatory Obligations to Avoid the Negative Outcomes of Noncompliance
There’s little doubt, then, that complying with the necessary regulations should be a no-brainer for any business. That’s not to say it’s straightforward, though. The constantly shifting sands of the regulatory landscape, and the competing challenges for board and leadership time, can make compliance feel like an impossible ambition; a rainbow’s end that always stays at an elusive distance.
Prioritizing compliance at a senior level in the business; putting rigor around an effective compliance program – perhaps making use of a degree of automation (many firms have realized the benefits of compliance solutions in compliance monitoring and management); ensuring that people across the business are accountable (making it clear that regulatory compliance isn’t the sole preserve of your compliance team) – all of these can help you to make step changes in your performance when it comes to compliance with the regulations you need to follow.