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What is regulatory compliance?

A guide to its importance, what to know, and what to look for.

Summary

Have questions about regulatory compliance? Find the answers here.

Time: 8 minute read

Companies of all sizes across all industries must meet local, federal, and international governmental regulations in how they work and conduct their business.

These regulations aim to protect people’s health, safety, the environment, data and much more.
 
In this article, we look at the topic of regulatory compliance including what it is, why it’s important, and best practices to protect your business.

What is regulatory compliance?

Regulatory compliance is when an organization adheres to laws and mandates created by governments or regulatory bodies relevant to the industry in which it operates.



Compliance requirements can vary from state to state and country to country depending upon the type of industry and the locations where the organization conducts business. 

Often, compliance can be a moving target, with constantly changing standards and behaviors to reflect evolving conditions, like environmental awareness, technology advancements, and scientific progress.



Why is regulatory compliance so important?

Being compliant means your company is actively striving to meet all regulations, reflecting an effort to ensure the best outcomes for its customers and employees. It also minimizes exposure to lawsuits and financial liabilities.


The consequences of non-compliance

Regulations exist for a reason and failing to meet requirements comes with consequences.

Monetary fines

Governing authorities may levy fines and settlements against a business that violates regulations including leaking customer data, engaging in discriminatory hiring practices, and more. Failure to pay the fines can result in penalties like a suspension of operations and more fines.

Operational restrictions

Repeated violations could see the organization prohibited from serving customers, barred from operating in certain industries or selling goods in specific markets, or being disqualified from bidding on future government contracts. All of this results in loss of business.

Business disruption

Forced work stoppages can have implications up and down the supply chain, affecting everything from raw material delivery and manufacturing to distribution and sales. Other distractions like lawsuits and legal actions take focus and resources away from daily operations, and security breaches can grind operations to a halt until the cause is found and fixed.

Increased scrutiny

Going forward, a business with a history of non-compliance may be subject to more intense scrutiny from governing bodies. This can slow operations, increase costs through mandatory adoption of compliance technologies or the forced hiring of a compliance officer, and the company may find itself facing stricter regulations or more frequent compliance audits.


Reputational damage

Media coverage of data breaches or companies found guilty of unethical business practices generally do not contribute to a positive image. Partners and customers affected by a data breach or other violation may be reluctant to continue to do business with the firm for lack of trust, erasing years of relationship building.

Additional costs to consider

These fines and penalties for non-compliance are all in addition to the costs of the actual cause of the violation. For instance, paying the money demanded by hackers in a ransomware attack (not recommended), incurring the time and expense of restoring infected databases and equipment to pre-breach status, or the costs of a product recall.



The benefits of ensuring compliance

The benefits of compliance go beyond minimizing risk of fines and other penalties and maintaining a solid reputation. Advantages of consistently meeting regulatory compliance policies include:


Avoidance of legal issues

Maintaining compliance protects the business from legal liabilities and potential lawsuits. If customer/patient data is properly stored, or workplace safety procedures and fail-safes are in place, for example, the business may not be liable in the event of a violation.


Increased customer retention

Client and business partner relationships benefit from trust. Proper handling of personal or business data and information encourages trust and may help customers feel better about continuing the business relationship.


Increased profitability

Streamlined workflows, more efficient employees, and reduced exposure to fines and legal issues all have a positive impact on the bottom line. Staying in compliance is a lot less expensive than falling out and paying the price to regain compliant status.


Competitive differentiator

Businesses can promote their commitment to compliance policies in marketing and public relations efforts to attract customers seeking to partner with businesses that value their privacy.
Midsection Of Lawyer Using Digital Tablet on Compliance

Workplace safety and diversity

Compliance with regulations regarding machinery, hygiene, ingredients, and material handling help prevent accidents and ensure products are safe for consumption. Complying with rules that prohibit discrimination and harassment contributes to a positive work environment and fosters acceptance.

In sum, proper compliance maintains the integrity of the business. It generates goodwill among customers and partners and helps the organization stay on top of changing regulations with just a little adjustment.


Primary U.S. compliance regulations

Some of the most well-known U.S. compliance regulations are about protecting your business from data leaks and lawsuits that can damage the organization, protecting employees from harmful working conditions, and protecting customers from fraudulent activities like predatory lending and price gouging:
 
  • The Health Insurance Portability and Accountability Act (HIPAA) created standards to protect patient information and ensure a straightforward transfer of the information between health insurance companies and doctors and health systems.
  • The Sarbanes-Oxley Act (SOX) of 2002 was enacted to protect investors of publicly traded companies from fraudulent financial practices by establishing standards for audits and public disclosure of financial data with steep penalties for violations.
  • The Dodd-Frank Act came about in the aftermath of the 2008 financial crisis, in which some Wall Street entities were deemed “too big to fail.” It ended taxpayer bailouts and placed rules on banks concerning speculative trading, investment activities, and reserve requirements to facilitate financial transparency and accountability.
  • The Payment Card Industry Data Security Standard (PCI DSS) sets technical and operational compliance standards for businesses to securely accept and process credit card data provided by cardholders and transmitted through card processing transactions.
  • The California Consumer Privacy Act (CCPA) applies to the collection and storage of customer information by companies doing business in the state of California. It requires businesses with at least $25 million in annual revenue to disclose if they will be selling personal information and gives consumers the right to opt out of data collection activities.
  • The Federal Information Security Management Act (FISMA) of 2002 made it a requirement for all federal agencies to develop, document, and implement an information security and protection program including risk assessment and continuous threat monitoring in light of growing cyberattack threats. FISMA standards have been updated several times in 2010 and 2019 to keep pace with the latest cyber threats.
  • Equal Employment Opportunity Commission (EEOC) regulations defend employees and job applicants against discrimination on the basis of race, color, nationality, religion, gender, age, disability, genetic information, and retaliation for whistleblowing in working situations. This includes hiring, firing, promotion, harassment, training, wages, and benefits at both public and private employers.

 

Primary U.S. compliance regulatory agencies

The major regulatory agencies responsible for overseeing compliance include:

  • Food and Drug Administration (FDA) – Oversees companies involved in manufacturing food products, cosmetics, drugs and medical devices.
  • Federal Trade Commission (FTC) – Enforces antitrust laws that are non-criminal for establishing a competitive market and protecting consumers from deceitful business practices.
  • National Institute of Standards and Technology (NIST) – Develops standards and guidelines to help meet specific regulatory compliance requirements such as IT and data security under FISMA.
  • Occupational Health & Safety Administration (OSHA) – Regulates working conditions by preparing and enforcing standards to provide a safe and healthy work environment.
  • Payment Card Industry Security Standards Council (PCI SSC) – Develops and drives adoption of data security standards and resources for safe payments worldwide.
  • U.S. Equal Employment Opportunity Commission (EEOC) –Enforces federal laws that make it illegal to discriminate against a job applicant or employee and sets penalties for unfair treatment in the workplace.
  • Companies doing business outside of the U.S. also adhere to compliance regulations put in place by foreign or international governing bodies.
One example is the General Data Protection Regulation (GDPR). Its regulations apply to organizations collecting data from citizens in the European Union regardless of the headquarters location of the business. GDPR is enforced in all EU member states. Further, GDPR applies to the data collected from residents in the EU even if they are not EU citizens, such as diplomats and vacationers.
 
Conversely, Canada, for instance, has no federal regulatory agency for securities trading. Instead, financial firms operate according to guidelines set by each province.

 

 

Smiling young businesswoman listening to discussion of lawyers during a compliance meeting at office

Regulatory compliance policy

Every enterprise should have a regulatory compliance policy in place.

 

Think of it as something akin to a disaster recovery policy; it is both a roadmap and a statement for adhering to relevant laws set forth by governing agencies in their industry. A regulatory compliance policy serves two primary purposes:

  • Outlines processes to be followed to keep the business aligned with compliance mandates, and who is responsible
  • Publicly declaring the organization’s commitment to compliance increases confidence in the business by employees, the consuming public, and governing entities

 A regulatory compliance policy typically outlines:

  • The purpose and scope of the compliance policy. What regulations are covered?
  • Who must follow the regulations. Are there any exceptions or limitations of the compliance policy?
  • List of specific regulations that must be followed and the steps and procedures to maintain compliance.
  • Communication protocols in the event of a violation including authorities to notify.
  • Procedures for monitoring and scheduling periodic reviews of compliance efforts.

 

The regulatory compliance officer and best practices

The task of determining which regulations must be followed, developing specific workflows and procedures to ensure compliance, and communicating and reviewing policies usually falls to a compliance officer.
 
The compliance officer might be a position created by the company as a proactive step to avoid legal consequences in a very litigious society, or possibly demanded by a regulatory body after finding repeated violations.

 

The compliance officer often implements best practices to ensure compliance and minimize the risk of fines and penalties for non-compliance by:

  • Developing and publishing the organization’s regulatory compliance policy.
  • Performing periodic internal audits to assess present compliance status.
  • Monitoring governing bodies for any changes or updates to regulations and keeping current.
  • Training employees in regulatory compliance.
  • Judging whether an incident meets the criteria for a violation.
  • Enforcing disciplinary action in case of violations.
  • Reporting known violations to governing authorities.
  • Implementing automated workflow solutions that increase productivity while maintaining compliance.
  • Being the face of compliance to the media after a violation.

 

Partner certification

Businesses rarely operate in a vacuum; sooner or later information and assets are touched by outside members of the supply or information chain.

When vetting suppliers and business partners, companies should inquire about the firm’s attitude toward maintaining compliance and only engage vendors that can demonstrate high-level certifications, such as:


HITRUST certification

The HITRUST Assurance Program helps organizations address security and data protection challenges through a comprehensive and flexible framework of scalable security controls. HITRUST certification means the organization has met key regulations and industry-defined requirements and is appropriately managing risk across 19 identified control domains.


PCI certification

PCI certification through the FTC is a must for companies processing electronic payments and using debit and credit card systems. PCI-certified businesses can be trusted to handle your customers’ transactions and secure their data. Without it, you are putting your customers at risk and exposing your firm to fines and penalties.


Equal Employment Opportunity Commission certification

This means the business is compliant with workplace hiring practices and cannot be penalized for discrimination. This provides confidence to businesses that their partners will not disrupt the supply chain based on violations of individual rights and freedoms.

 

FDA 510(k) clearance

Companies in the medical device space will want to make sure their partners' products have Food & Drug Administration 510(k) clearance, meaning the device to be marketed has been proven safe and effective before application on a patient.

Sometimes earning a certification like the FDA 510(k) clearance requires meeting additional quality and compliance standards. For example, to earn this FDA certification, a company must earn ISO (International Organization of Standards) 13485 certification.
 
Related content

 

 

Making compliance part of your business DNA

Following compliance best practices and finding a partner who excels in the area of compliance helps to protect you and your customers.

As a company whose business revolves around information, we understand the challenges and requirements of keeping data safe.

In fact, we have earned multiple certifications relating to keeping data and products safe including HITRUST for data security, PCI DSS to help customers manage secure electronic payments, FDA 510(k) clearance for our 3D craniomaxillofacial (CMF) and orthopedic patient-specific anatomic tissue and bone modeling, and several others.




For more information about how these certifications can support your business goals or how we can help your business achieve regulatory compliance in your industry, contact us.

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