Regulatory Compliance

In this piece, learn the ins and outs of regulatory compliance to help protect your company against its challenges. Plus, see how Global Relay puts regulatory compliance at the heart of your business, so you won’t have to wonder when the next rush of system updates, new policies and legal changes will occur.

What is regulatory compliance?

Regulatory compliance refers to organizations following the rules of their industry. Typically, these rules (each known as a regulatory requirement) are set by governments or specific industry bodies.

In some cases, companies are required to prove their compliance to even operate at a basic level, whereas compliance with other regulations are for accreditation and standards purposes. A dedicated compliance officer could be hired for this purpose.

Regulatory compliance requirements are typical all over the world, including in places like the USA, the EU and UK (post-Brexit). Individual countries in Asia, South America and Africa also have their own regulations.

And as for the industries with the most regulatory requirements:

• Financial services (such as MiFiD II)
• Healthcare (such as the Health and Care Act)
• Cybersecurity (such as WORM storage)

Why is compliance important?

The overall purpose of regulatory compliance is to provide transparency and standardization among competitors- enabling customers to make informed and fair decisions.

But compliance management is also important because:

1. Implementing the right internal controls is more likely to prevent negative consequences like fraud or errors
2. Proving regulatory compliance improves brand perception, wins contracts and retains customers
3. Regulatory frameworks can create a better culture at work, where colleagues are trusted and confident

Not every compliance regulation is prescribed; some act like guidelines. This means that it’s up to the company to choose whether, and how they will adhere to the rules. It leaves a lot of room for different approaches and methodologies, which can impact the effectiveness of the compliance strategy, and compliance standards across an industry.

Examples of regulations and steps to comply

The requirements of regulatory compliance vary greatly, from industry to jurisdiction. To explain some of those differences (and the fact that every company needs precise knowledge about which regulations apply to them), here are two examples:

1. GDPR
2. CCPA

GDPR

The General Data Protection Regulation is Europe’s data protection regulation. It aims to give any person living in the EU the right to opt in or out of digital data collection (by any entity) that can identify them.

GDPR requires compliant businesses to get consent for collecting personal data, and provide legitimate reasons for collecting this. For example, websites that collect user data through cookies must display buttons for users to accept or deny its collection and processing. Moreover, the fines for non-compliance could be up to €20 million, and depend on each case.

CCPA

The California Consumer Privacy Act is comparable to GDPR, since it aims to protect Californian consumers from companies collecting and sharing their personal data for the wrong reasons. But only large businesses (that generate more than $25 million, deals with more than 50,000 people’s data, or derive more than 50% of their revenue from data selling) must comply with the CCPA rules.

Another big difference is that non-compliant parties are first given 30 days to rectify their mistakes. Afterwards, the penalties for non-compliance are limited to $7,500 per breach (although firms can be penalized for multiple breaches at once).

Benefits of compliance

When most people think of regulatory compliance, the clear benefit of doing it is to avoid fines and other penalties. But corporate compliance also:

• Helps companies to establish their credibility
• Offers the customer transparency for well-informed decisions
• Increases overall trust in the industry

Credibility

Most regulations involve a host of complicated requirements, which compliant companies have to make specific changes to meet. Sometimes it even requires changing operating systems, from a legacy platform to something with compliant features, which can cost millions. Therefore, gaining approval as a compliant business is quite a feat.

This is especially important in b2b relationships, since partners will often need compliance in their third parties to meet risk management requirements. Publicly-listed companies in the US are likely to offer preferential treatment, when it comes to selection, for accredited SOX law compliance in their vendors and suppliers, for example.

But, even in b2c situations, customers also view companies as more credible when they meet certain regulatory requirements. One common example is in UK banking, customers will look for FSCS compensation protection in case the bank gets into financial trouble, so that they know their money (up to £85,000) is protected.

Transparency

Similarly, regulations exist to ensure that all organizations within one industry operate on a level playing field. Minimum regulatory compliance standards are set by the frameworks, which helps to standardize how businesses operate, communicate, and which products or services they’re allowed to sell.

By creating a minimum standard for transparency, customers can find out all the information they need to effectively compare their options. It means that customers are less likely to be mis-sold products or services that:

1. They don’t need
2. Aren’t the best fit if another product on the market is more suitable in their financial interest

Industry trust

The other huge benefit to implementing regulations is that they bring stability (through reduced compliance risk) and reputational advantages. When clients know that companies in a sector have to be regulated in order to operate, their overall trust in the industry is increased.

This doesn’t necessarily boil down to individual companies, because it only benefits sectors where the majority of organizations are regulated.

One good example is Consumer Duty introduced by the regulatory body; the FCA. They aim to protect the interests of the consumer, prevent harmful messaging and make consent the most important factor to communications, in hopes that customers will have more trust in their financial providers.

Penalties of non-compliance

Adhering to regulations can be expensive. But ultimately, the cost of non-compliance is much worse. Non-compliant parties can expect:

• Fines, up to millions of dollars for the worst violations of regulations
• Removal of accreditations which can make it difficult to acquire new contracts
• Suspensions and job losses for individuals who did not fulfill their roles
• Imprisonment for the worst cases of intentional violations

Challenges of compliance

For workers in regulated industries, compliance challenges can be the biggest stressors of their daily workload. Today, we’re discussing two of the most common:

1. Cost
2. Strategy

Cost

The obvious cost of compliance is making changes to comply with the requirements; whether that includes new computer systems, hiring trained personnel, or completing upgrades.

But there are some ‘hidden’ costs of compliance that are not necessarily obvious unless you’re experienced with regulations. These can include the cost of:

• Audits: assessing what actually needs to change can present a barrier to operational efficiency, or add up to days of salary costs where an employee could be adding value elsewhere
• Training staff on new systems: when regulatory change is introduced, employees require training to use new systems or features them, which takes up their salaried hours
• Testing: scenario testing is a big part of some regulations, which may require hiring outside teams and costs to set up the scenarios
• Reporting: you’ll need to prove your compliance with regular reporting, and pay for a digital storage space for documents, sometimes for up to 6 or 7 years
• Legal fees: the in-house salaries and external fees for specialist lawyers add up

Moreover, when there is a lack of buy-in to compliance obligations from the top, it can be hard for regulatory professionals to gain approval for their plans. This can create friction within a large organization (like a financial institution) when stakeholders don’t value regulatory compliance.

Strategy

Some regulations include greater detail in how to actually comply. But others don’t provide this information, and instead leave it to the individual companies to decide their best route for compliance.

In the case of the latter, companies tend to spend more on their strategic decisions for compliance. In fact, in 2022 the average cost of regulatory compliance in the US was $5.5 million.

This presents a significant disadvantage for smaller companies who don’t have the cash flow to fund such an operation. In some cases, these lean teams will invest more time in building a creative, lower cost strategy. And in other cases, they struggle to balance the demands of the regulators while staying afloat.

Choose a compliance partner for all your regulatory requirements

Regulatory compliance is a beast, but there are specific platforms out there to help you tame it.

Are you feeling like it’s time to evolve the high-pressure, ‘just-in-before-the-deadline’ stressful regulatory efforts to a smooth and comprehensive journey to compliance?

Global Relay exists to help you put compliance at the heart of your business. We work in industries like finance, energy, government, insurance and law to help you store and test the communications inside your firm.

And by security your data with military-grade encryptions, we can help you protect against the risks of non-compliance. Simply fill out this form to try Global Relay for yourself.

< Back to the hub