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written by | September 7, 2022

What Is Regulatory Compliance And Why It's Important for Business

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Regulatory compliance is particularly crucial in businesses with strict compliance scrutiny, such as finance and healthcare. It is also a vital aspect of businesses where data security, cybersecurity, and consumer privacy are critical for long-term viability and compliance. Noncompliance has harmed a diverse variety of organisations, from oil and gas sectors and industrial facilities to telecommunications corporations and banks, including consultancy firms, in recent years.

Did You Know?

When a firm achieves regulatory compliance, It may show integrity, reliability, and ethics by following the laws and regulations that govern corporate operations, which can increase stakeholder trust and promote its competitiveness.

Regulatory Compliance Meaning

Regulatory compliance means that a corporation is aware of and adheres to all applicable laws and regulations. These regulations can be implemented by governments at the municipal, state, national, or international levels.

It differs from commercial observation, which involves following internal standards and norms in order to attain self-defined goals and objectives. However, both types of compliance are required since they may steer an organization's strategic route, develop its moral system, and provide accountability and transparency.

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Advantages of Regulatory Compliance

Maintaining compliance assists any organisation in mitigating risks such as cybersecurity incidents and data loss, as well as avoiding disciplinary action, which might result in license revocations, tarnished reputations, lost clients, and financial fines and losses.

  • Maintaining compliance in an ever-changing regulatory structure: Final submission may appear to be a distant dream for organisations striving to adapt and amend their policies to fulfil federal, market, and state regulations. A GRC (government, Risk, and Compliance) system with compliance processes might help you forecast these unexpected bends in the road.
  • Protecting the company's assets & reputation: Failure to comply can result in enormous reputational costs and a loss of confidence among your customers. Worse, your license may be cancelled, limiting your capacity to accomplish corporate objectives and ambitions. Managing regulatory compliance mitigates these risks and contributes to the smooth functioning of everyday activities.

Why is Regulatory Compliance Important for Businesses Today? 

Financial Health

Any compliance department will specify that the first advantage of regulatory compliance is financial security. Noncompliance with regulatory requirements can result in severe fines for the offending entity. 

Defense Against Lawsuits

Compliance with rules and regulations, in addition to averting financial fines, protects firms from lawsuits—whether filed by the authority or somebody else. For example, 142 local governments filed lawsuits in 2019 against businesses for breaking the Indians with Disabilities Act of 2011 and 2019.

Competitiveness and Business Continuity

Regulatory compliance gives a plethora of guideposts that teach firms what they need to flourish in their sector. Compliance regulations have also emerged to promote market homogeneity and enable businesses to compete honestly, morally, and on an equal basis. Companies that accomplish regulatory compliance may have a competitive advantage in their sector.

Cybercrime Protection

Higher-risk businesses, such as healthcare and finance, appreciate the value of the data they gather and recognise that companies are attractive options for bad actors. Other industries, on the other hand, may believe that they are less likely to be targeted. This erroneous notion frequently results in a lack of regulatory compliance emphasis and decreased security, increasing the possibility of cyberattacks & data leaks.

Data breaches reduce client engagement, which can have disastrous financial consequences for the organisation, possibly leading to bankruptcy and closure. Regulatory compliance increases data security by compelling firms to follow laws that safeguard their properties from risk actors and serves as one of several protections to assure data protection.

Also read: Business Vs Commerce : Differences Between Business And Commerce

How Can Businesses Achieve Regulatory Compliance?

Regulatory compliance necessitates an analysis of the company's requirements and any industry-specific rules, followed by developing processes to satisfy these needs. The following are typical steps to attain regulatory compliance:

Determine Appropriate Regulations 

Identify whether laws and regulatory rules apply to the firm's industry and activities. These involve federal, state, and local regulations.

Understand Your Needs

Identify which requirements in each rule apply to the organisation and decide how to enforce these demands.

Processes for Documenting Compliance

Document compliance procedures clearly, with detailed directions for each function engaged in compliance maintenance. This data will come in handy during regulatory inspections.

Keep an Eye on Changes and Assess 

Compliance regulations are regularly revised. Changes must be tracked to see if they are essential to the business. If they are, update the processes and train the necessary employees on them.

They should perform in-house compliance checks regularly to ensure that the firm is adhering to regulatory rules. These internal audit reports should thoroughly examine compliance procedures and regulations, such as client access restrictions. In-house audits also aid in preparing for official compliance audits by reputable third parties. 

Five Essential Functions of the Compliance Department

The Regulatory compliance department is divided into five distinct functions, and each function is critical to ensuring compliance.

Identification and Responsibility

Assigning a safety officer and team to oversee their compliance initiatives. Rather than shifting compliance responsibility from one department, a committed group will be productive. The compliance department is in charge of identifying legislation and compliance rules.

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Prevention

Create a compliance program for the organisation to help you remain on top of everything. It will avoid any issues with authorities and the shame associated with earning a fine. Controls should be designed and implemented to assist limit compliance risk. Constantly record the compliance operations, including detailed directions regarding each role.

Observation and Detection

One can assess compliance by recognising a specific piece of information. One can then enter this information into a centralised database. The most convenient approach to collecting information is to use a digital solution. One can adjust their processes if rules change, and one may also train the appropriate personnel on the upgrades.

Resolution

When compliance controls are violated, the compliance department must take quick action. The appropriate person must decide on the correct location. A solid corporate governance system may ensure a proper escalation.

Advisory

Compliance has a horrible reputation for hating on others. It's a good idea to advertise the compliance division as a collaborator, and one that facilitates the collaboration of all firm divisions for the benefit of the business. One may market it as an inside consulting partner.

Examples Of Regulatory Compliance

Regulatory compliance comes in a variety of forms. It all relies on the field. It might range from processing personal data to guaranteeing payment security. Here are some of the most critical to be cautious of:

  • the Contract Labour (Regulation) Act of 1960 
  • The Environment Protection Act of 1986,
  •  the Trade Union Act of 1926, the Industrial Disputes Act of 1947, 
  • the National Environment Tribunal Act of 1995, 
  • the Storage and Import of Hazardous Chemical Rules of 1989, 
  • the Hazardous Wastes Rules of 2008, 
  • the Public Liability Insurance Act of 1991,
  • the Maternity Benefits Act of 1961, 
  • the Water (Prevention and Control of Pollution Act of 1974, 

Why is Workplace Compliance Important?

Having so much at risk, you must be proactive regarding compliance. Compliance is critical in the workplace since it can assist in lowering a company's risk. Backing up data, for instance, is a need for audit compliance, and failure to do so may result in data loss or possibly the demise of a firm.

A compliance management program scrutinises all corporate procedures. In consequence, it aids in the fine-tuning and enhancement of processes. As a consequence, the company's performance and profit will grow. One example would be improved data management due to adhering to data norms and regulations.

How Does One Make Assured Regulatory Compliance?

  • When approached appropriately, securing regulatory conformity is not tricky. First, a business should discover the regulations and standards that apply to their sector. 
  • The next stage is to develop a method to satisfy these regulatory criteria so the firm can remain compliant.
  • It would be beneficial to conduct frequent in-house compliance audits. The compliance processes, rules, and user account controls must all be examined during the audit. 
  • Such audits assist in determining how effectively you are adhering to regulatory obligations. Audits can also be used to prepare for independent foreign formal audits.

Also read: How to Write a Business Plan? - Ideas, Format, Need & More

Conclusion

Regulatory compliance refers to an organisation's conformity to applicable laws, rules, standards, and specifications. Mistakes of regulatory compliance are frequently punished by law, including Government sanctions. The security of digital assets is a critical part of compliance. Cybersecurity is an essential element of conformity, but it is among the hardest for corporations and their service personnel to comprehend. The National Institution of Standard & Technology is one organisation that works to resolve this issue. So that administrators and other essential stakeholders may adhere to standards to satisfy electronic information and assets compliance obligations.
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FAQs

Q: What are the different kinds of compliance?

Ans:

Corporate and regulatory compliance are the two basic kinds of compliance that indicate where the structure is coming from. Corporate & regulatory compliance both include a set of rules, regulations, and procedures to follow.

Q: What is the risk of regulatory compliance?

Ans:

Compliance risk refers to a company's possible exposure to legal fines, financial forfeiture, and substantial loss due to failure to follow industry rules and regulations, domestic laws, or recommended best practices. Compliance risk is often referred to as integrity risk.

Q: What are the four different categories of compliance?

Ans:

The four types of compliance attitudes include consciously complying, unwittingly non-compliant, accidentally compliant, and intentionally non-compliant, as well as the role that intent and institutional success play in the execution of the behaviour.

Q: What do you actually mean by "regulatory compliance"?

Ans:

Regulatory compliance refers to an organisation's conformity to applicable laws, rules, standards, and demands. Violations of compliance issues are frequently punished by law, including government fines.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.