What is Regulatory Compliance?
Regulatory compliance by its definition is an organization’s compliance with local and global rules and regulations. If an organization fails to comply with regulations, it can face legal troubles and huge fines.
Some of the biggest examples of compliance laws and regulations include:
- Payment Card Industry Data Security Standard (PCI DSS)
- Health Insurance Portability and Accountability Act (HIPAA)
- Federal Information Security Management Act (FISMA)
- Sarbanes-Oxley Act (SOX)
- EU’s General Data Protection Regulation (GDPR)
- California Consumer Privacy Act (CCPA)
Based on the nature of the business, every organization has to follow different rules and regulations.
Importance of Regulatory Compliance
Within the last 2 decades, regulations have become more elaborate and complicated. Almost every industry has some set of rules and regulations that businesses have to follow.
These growing regulations have led to the birth of new positions, such as:
- Creation of corporate regulation
- Chief and regulatory compliance officer
- Compliance manager
The primary objective of these positions is to ensure businesses comply with all evolving regulations.
Regulatory compliance processes and strategies help organizations achieve their business goals while preventing the risk of fraud. Companies that are transparent about their compliance process tend to build more trust in the industry.
Some of the compliance rules are specifically designed to ensure customer data protection. Poor protection of customer data can impact an organization negatively. With more and more data breaches happening every day, businesses across industries need to comply with regulatory compliance.
Data privacy-specific regulatory compliance such as GDPR and CCPA have become more common. Proper handling of consumer data has become a huge concern across the globe and businesses are under higher scrutiny.
Challenges with Regulatory Compliance
Companies that don’t follow regulatory compliance practices are held liable legally and financially. Moreover, they have to participate in remediation programs that include on-site compliance, balance and audit confirmation, and compliance inspections.
Non-compliance with regulations can lead to reputational damages as well. Complying with regulations can be expensive as businesses have to spend capital to comply with laws and regulations.
Businesses have to appease stakeholders by showing profit, this is why a lot of organizations skip out on complying with regulations.
There can be a lot of challenges surrounding regulations, especially in highly regulated industries such as finance, and healthcare.
Common challenges that come along with maintaining regulatory compliance include:
- Figuring out how new regulations will influence the direction of business and existing business models.
- Incorporating and developing a compliance culture and promoting the culture throughout the organization.
- Deciding on and hiring compliance roles and accountability and functions required by legal, compliance, and audit departments.
- Foreshadowing compliance trends and integrating regulatory processes to increase efficiency.
Constantly evolving consumer technologies also make it complicated for companies to comply with regulations.
The inclusion of the internet, websites, and apps in businesses creates multiple endpoints that businesses have to keep in mind. For digitized companies to remain compliant, they have to stay on top of required updates and patch weak points in the existing software.
Compliance Regulation Across Industries
Every industry has some regulations, but some industries are far more regulations than others. The financial industry, for example, is constantly under scrutiny and has several mandates designed to protect the public and investors from nefarious business practices.
Healthcare companies are also subject to strict rules and regulations as they handle a lot of sensitive and personal patient data. Hospitals and other healthcare providers have to show regulatory agencies that they’re complying with patient privacy rules.
HIPAA is the regulation that the healthcare industry has to follow. The regulatory compliance outlines all the data privacy and security mandates designed to secure patients’ medical information.
In addition to healthcare providers, cloud service providers (CSPs) and other vendors of healthcare organizations also have to comply with HIPAA privacy laws.
Each country also has its set of regulations. SOX, for example, is a U.S. legislation, but similar regulations include Germany’s Deutscher Corporate Governance Kodex (DCGK). Australia also has a similar regulation that includes Corporate Law Economic Reform Program Act 2004 (CLERP 9).
Multinational organizations have to be wary of the regulatory compliance rules of the country they operate in. For example, GDPR doesn’t just apply to companies and citizens living in the EU, but also to companies and users whose data is stored in the EU.
GDPR expanded on the initial rules of consumers by including a transparency mandate that includes businesses informing customers on how their data is used.
Companies that comply with GDPR compliance rules are required to notify all affected parties and supervising authorities about a data breach within 72 hours.
When it comes to CCPA, California residents are provided the right to which kind of data is being collected about them. Consumers also have the right to refuse the sale of their data.
How Companies Ensure Regulatory Compliance?
Each company has different regulations to follow. Regulatory compliance requires businesses to analyze their unique requirements and mandates specific to the industry.
Here are some steps businesses can take to achieve regulatory compliance:
- Identify applicable regulations: Businesses need to figure out which laws and compliance regulations apply to a company’s industry and operations.
- Determine requirements: Identify requirements in each regulation that are relevant to your business. Come up with plans to implement these regulations.
- Document the compliance process: Businesses should specify the compliance process with specific instructions for each individual.
Monitor changes and apply when needed: Compliance requirements are applied regularly, and businesses should monitor changes to determine if they are relevant to the company.
