What is regulatory compliance?
Regulatory compliance refers to an organization’s adherence to rules, policies, standards, and laws. It includes state, federal, and international laws related to business operations. Regulatory compliance provides frameworks and guidance for organizations to follow while reinforcing to customers that the business practices solid business ethics.
Organizations that don’t follow mandatory regulatory compliance legislation face repercussions, including fines, remediation programs, and audits. To reduce risk and remain compliant, many businesses leverage regulatory change management software to stay up-to-date on regulatory changes and ensure compliance across the organization.
Importance of regulatory compliance
Not only does regulatory compliance help ensure businesses abide by the law, but it also serves as a mechanism for evolving business practices to meet changing laws.
Noncompliance is costly. Data breaches, policy violations, and unethical practices add up and can cost companies thousands or, worse yet, millions of dollars. Compliance violations are based on the severity of the offense, so businesses of any size could be hit with large financial penalties.
Finally, regulatory compliance protects an organization’s reputation. These protections help businesses build trust with other companies, employees, vendors, and customers. When customers have to choose between businesses with similar offerings, compliance can put an organization one step ahead of those who are non-compliant.
Elements of an effective regulatory compliance program
Creating an effective regulatory compliance program doesn’t happen overnight. Businesses that practice the following seven elements of a compliance program may experience the greatest benefits and long-term return on investment:
- Designate compliance positions. Many businesses employ a corporate compliance officer (CCO) and a compliance committee to lead the charge and own the program. Once positions are established, the committee should define its mission, complete training as needed, and outline clear responsibilities.
- Conduct a compliance audit. Organizations should start with a comprehensive audit to understand the current state and identify problem areas.
- Create policies and procedures. Compliance committees should develop policies and procedures to promote and distribute compliance across the organization. Standards of conduct should be clear and accessible.
- Conduct regulatory compliance training. In addition to rolling out policies and procedures, organizations should train employees on the importance of compliance. Failure to adequately train staff increases the likelihood of an individual engaging in noncompliant behaviors.
- Perform internal monitoring and auditing. Companies that prioritize regulatory compliance implement processes for performing regular monitoring and audits. These activities enable consistent assessment of the business.
- Address identified gaps and potential risks. When a business identifies gaps in its compliance, it should address them and update all related processes. Companies should promptly investigate and address all matters to prevent further risks.
- Enforce disciplinary standards. In partnership with the compliance team, an organization should enforce disciplinary standards for compliance violations. Commitment to enforcement conveys the importance of remaining compliant and creates a culture that prioritizes ethical behavior.
Regulatory compliance best practices
Some general best practices should be followed when implementing a regulatory compliance strategy. In addition to the framework outline above for building an effective program, businesses should consider the following for best results:
- Knowing the regulatory requirements for the industry. Regulatory requirements vary by industry, so it’s essential for businesses to ensure they are following the right set of rules.
- Tracking violations and associated costs. Businesses ought to track and monitor all compliance violations and costs to understand the impact on the bottom line. Tracking violations and associated costs helps businesses understand the ROI when investing in risk mitigation practices.
- Review the compliance program. Implementing regulatory compliance shouldn’t be a one-and-done practice. Instead, organizations must prioritize reviewing the program and its components regularly to make adjustments as needed.
Regulatory compliance vs. corporate compliance
Regulatory compliance and corporate compliance are sometimes used interchangeably, but one key difference separates the terms. Regulatory compliance refers to an organization’s adherence to laws and legal mandates. Corporate compliance defines the ways a company ensures it is following an internal compliance structure.
The key difference is that regulatory compliance meets external legal requirements and corporate compliance meets internal requirements set by the business itself.
Alyssa Towns
Alyssa Towns works in communications and change management and is a freelance writer for G2. She mainly writes SaaS, productivity, and career-adjacent content. In her spare time, Alyssa is either enjoying a new restaurant with her husband, playing with her Bengal cats Yeti and Yowie, adventuring outdoors, or reading a book from her TBR list.
