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Regulatory Compliance: Business Stability Blueprint
August 16, 2023
12 minutes
11463 Viewers
Ever wonder what exactly regulatory compliance is? You have little idea about regulatory compliance, in it? But I’m sure that you want to know more about it. Without delay, let’s grasp some fair knowledge about regulatory compliance.
What is Regulatory Compliance?
Let’s start with the definition first.
To define regulatory compliance, you must have some idea about compliance plan.
Semantically, compliance means conforming to a rule, such as a spec, policy, pattern or law. Regulatory compliance outlines the goals that organisations want to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulation.
The number of rules and the need for operational clarity is rising. So, organisations are willingly adopting the use of consolidated and tuned sets of compliance controls. They use this approach to assure that all necessary governance requirements without the useless replication of effort and activity from resources.
Functions of Regulatory Compliance
So what are the roles of regulatory compliance?
Regulatory compliance portrays a vital role in managing risk and hazards. Typically there are five key areas of responsibilities.
They are:
Identification
- Identifies possible risks that an organisation may face
- Addresses the jeopardies
Prevention
- Advises on how to prevent the risk management factors
- Implements control to protect the organisation from those pitfalls
Monitoring and Detection
- Observes and reports on the effectiveness of controls in the management of the organisation’s risk vulnerability
Resolution
- Determines compliance issues as they enter into the picture
- Maintain the company’s input and output qualities
- Actively try to lessen financial wrongdoings
Advisory
- Advocate business on rules and regulation
- Commend what to do to prevent future loss
Regulatory Compliance in the United Kingdom
The United Kingdom has noteworthy regulations. Many of these come from the European Union laws. Institutions like the Financial Conduct Authority (FCA), Environment Agency, Scottish Environment Protection Agency, Information Commissioner’s Office, Care Quality Commission, etc. also control some regulatory compliance domains.
The Data Protection Act 1998 issues necessary compliance for all large and small firms. The Freedom of Information Act 2000 observes the public sector.
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Financial compliance of the United Kingdom
The Financial Reporting Council (FRC) issues U.K. Corporate Governance Code (formerly the Combined Code).
All publicly listed companies should give specific content in the core financial statements. The statements must include:
- Balance sheet
- Thorough income statement
- Statement of changes in equity
- Cash flow statement as international accounting standards
International Standard
The International Organization for Standardisation, known as ISO and it’s ISO 19600 standard is one of the first international standards.
The roles of ISO are
- Manipulates how businesses handle regulatory compliance
- Gives a reminder of how compliance and risk should operate mutually
- Emphasises companies to share a common framework with some subtleties to account for their variations
- Produces international standards like ISO/IEC 27002 to support organisations meet regulatory compliance with their security management and assurance best practices. Compliance with the ISO 27001 framework ant in this context, as it provides businesses with a clear and unambiguous set of standards for data security which can be comprehensively followed and independently verified. This allows any company to deliver a consistent level of protection which is good for deflecting modern threats and also earning the trust of its clients.
Some local or international specialised organisations, for instance, the American Society of Mechanical Engineers (ASME) also promote standards and regulation policies. They provide a wide range of rules and instructions. Thus, they ensure compliance of the products to safety, security or design standards.
Regulatory Compliance Risk Management
Regulatory compliance risk is the damage that a change in regulations or legislation will affect security, company, or industry. It has ranked 5 among 20 business risks.
If you fail to comply with rules and regulations, your business will give penalties. It is evident in it? Are you well aware of the risk factors regarding regulatory compliance? Let’s have a closer look in it.
1. Environmental Instability
Environment and human beings are intimately related to each other. Some organisational activities may harm living organisms and the environment. So you have to keep this point always in your thoughts.
2. Health and Safety
It implies the risk associated with all aspects of the health and safety of your workplace. If any accidents or injuries take place, you have to pay a significant loss.
3. Social Sanity
In school, we have learnt that humans are social beings. You are a part of society, so as your business. Your business operation always is at risk if it harms the community people or the workers operating with you.
4. Corruption
Corruption is a curse. Corrupt practices are those which are related to fraud, bribery, manipulation, or compromising with the quality. Your organisation may or may not be associated with these manners, but it is you who is usually blamed for the actions of your employees or agents.
5. Operation Risk
This type of risk occurs when your process will dash customers’ hopes. It includes:
- Infrastructure risks
- Human error
- Negligence
- Information Technology (IT) Risks
- Mechanical Failure
- Unsafe and Weak Work Environment
- Process Standard
6. Increase in cost
As an honest person, you always prefer quality over quantity. Again, as per the businessman’s view, you also want the volume to make a profit. An ideal business tycoon always tries to maintain a perfect balance between these two. And sometimes this balance increases the production cost, which is a risky part to some extent.
7. Tariffs and trade policies
Regulatory changes like tariff and trade policies will affect your company vigorously. Are you thinking of investing in foreign goods? Do you want to start an export or import business? You should keep this risk in your mind, I insist.
8. The bottom level of wages
Hiring a large group of low skilled labours or employees can substantially impact your company. The extended amount of minimum wages per person can be a critical regulatory risk for you.
9. Mandated holidays and sick leaves
It impacts a company’s bottom line very notably. Alteration in vacation and ill days means to give employees more time off.
Moreover, any pandemic situation like COVID-19 alone can make a giant company bankrupt. So you can’t deny the risks and always have to be prepared for this. As you know, anything can happen anytime.
Regulatory or Compliance Burden
Compliance or regulatory burden or cost is the administrative value of regulation in modes of money, time and complexity. It is the expenses that a company uses up to abide by the government regulations. Compliance cost is one of the outcomes of local, national or international laws like GDPR (for European Union countries).
Compliance cost includes the following :
- The cost related to assemble and issue reports
- The cost of creating and maintenance of the system needed to gather facts and details for the reporting of compliance
- Cost of the person who monitors compliance systems and constructs them
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Why Regulatory Compliance is So Important?
The term regulatory compliance is a crucial point for your business. We know that regulations are indispensable to maintain the proper functions of economies, hence societies. So you can’t nullify its weight.
Let’s point out now.
- It warrants the organisation conforms to stringent, complex legal mandates and applicable laws.
- Provides guidance to attain business goals.
- Helps companies market themselves to customers.
- A transparent regulatory compliance process helps clients build trust in business processes. It also potentially improves the profitability of the company in the process.
- Some processes are specifically designed to fortify data protection. They create a shield and safeguard a client’s confidential information.
- The regulatory rulebook will give you protection from bankruptcies and safety disasters.
- It is beneficial for the consumers as it shields them from the harmful consequences of actions carried out by firms.
- If you have a business, it will hedge not only your brands but also your reputations as well.
- It relieves directors and managers by avoiding criminal liability and career termination.
- Regulatory compliance unites public interests with your business purposes.
- It also uncovers better data which leads to better decisions. It harmonises systems and data and assures clarity around what things are and what they are perceived. This transparency and data security bring about increased visibility. That is essential for any investment and decision making.
- Regulatory compliance also enables less hesitance and more confidence as it prevents a company from being at a standstill.
- Your company must have a mission. A well-furnished mission statement addresses not only external laws and compliance regulations but also a company’s internal and external aspirations. It is about what is not legal or is required. Also, it is about doing the right things which make your company’s mission more noticeable.
- Last but not least, it enhances the relationships with the stakeholders and the regulators. It facilitates a more vibrant analysis of what really matters. It also reflects what is allowed for faster, cleaner decisions based on a higher level of trust.
Blimey! It holds a high level of importance! Now you see why regulatory compliance is such a big deal.
Top 5 Challenges of Regulatory Compliance in 2024
The world is continuously evolving, and regulation is also increasing. The companies are the most significant witnesses of this phenomena. As for 2024, the year is full of drama and trauma!
Three-quarters of firms expect the amount of regulatory information published by regulators and exchanges to increase within the next year.
I have listed the most significant challenges for you.
1. Brexit!
In the UK, the number one topic is still Brexit! Yes, the UK has a government with a clear majority and an “oven-ready” scheme. But there’s plenty of devils hiding in the details. It is only eleven months long now, so what will be the scenario after the transition period is a bit shady right now.
The challenge arises about what will be the level of equivalence given to the financial services firms. Also, what political moves are brewing in Scotland and Northern Ireland that might hinder the whole process.
2. Artificial Intelligence
There are waves of continual legal and regulatory alterations and expectations. Firms struggle to know what is right and how best to achieve compliance. Also, they try to satisfy the internal stakeholders who hold the purse ropes and balance the books.
Majority of ‘dynamic’ compliance officers are using technology to monitor employees’ policy compliance. Indeed these systems are worthy as they allow instant entry to data and reports at the click of a button.
3. Senior Managers and Certification Regime (SM&CR)
SM and CR are like a time loop similar to some regulatory groundhog day. It was set after the 2008 financial crisis. It was the result of the outcry from the public. It is related to their perception of the lack of accountability and punishment of those running and controlling banks and other financial sectors.
4. Data Protection and Cyber Security
We live in an increasingly sophisticated world. In this state of the art world, data protection is one of the vital areas for attention. Keeping customer’s data well-protected and secure has become a more indispensable commodity than ever.
Nowadays, cyber-attacks are frequently happening. In banks, they are almost doubled in numbers within a year as a result of the overconfident officials.
You see, it’s a significant challenge that you have to face and overcome. Otherwise, you will be doomed!!
5. Email Frauding
It is a real threat! People are tricked into sharing their private info and money status now and then. 90% of data crimes have a phishing component to them. Moreover, phishers are undoubtedly resourceful and well aware about the security measures.
As per the email, phishing is very easy going. People are likely to trust emails and go to the links which the emails provide. And then the actual hoax begins! With that one click, log in details, passwords, and bank details will be collected. All these happen under the guise of a legitimate reason.
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Wrap Up
In this blog, I intend to elevate your knowledge about regulatory compliance management, and it’s importance. Also, I attempted to provide some basic terminology about regulatory compliance.
I believe now you have a clear concept about regulatory compliance. If you want to start your business or join in any company as a compliance officer, you should not avoid the terms and regulations regarding this. Take it as a piece of advice from me to you as a well-wisher. Because, why not?
So, what is your thought about regulatory compliance?
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