Why Is Regulatory Compliance Important?

Businesses worldwide must meet certain standards and regulations. No matter your industry, companies are responsible for creating fair and secure business environments and transactions. In doing so, businesses can build loyal partnerships with other vendors and consumers. 

Following regulatory compliance is a significant way to maintain a secure business environment. Regulatory compliance is the practice of following government regulations and guidelines that relate to your industry. Specific regulations depend on your industry type, but regulatory compliance violations can lead to legal consequences and fines. Cybersecurity and IT organizations must follow regulations protecting data and sensitive information. 

Read on to learn more about the meaning of regulatory compliance and how it impacts your organization.

What Is Regulatory Compliance?

Regulatory compliance refers to following the set of governmental laws, regulations, and standards related to a business's operations. These rules protect sensitive information and establish safety protocols, making them essential. The specific requirements of regulatory compliance depend on the industry and business nature. Companies that work with consumer data, health regulations, employee safety, and other similar areas must meet regulatory standards.

Overall, regulatory compliance helps companies maintain ethical and security standards. The regulations are determined and enforced by the government, making them mandatory. You could face significant legal repercussions or fines if your business fails to meet regulatory compliance requirements. 

These are common examples of regulatory compliance standards businesses must follow:

• Health Insurance Portability and Accountability Act (HIPAA): HIPAA requires the protection of sensitive patient health information. It prevents the discussion of private patient data without their knowledge or consent. HIPAA covers a wide range of data, including current and previous healthcare providers, health plans, and billing information. HIPAA only applies to organizations that use and store healthcare data.
• Sarbanes-Oxley Act (SOX): Enacted after a series of money-reporting scandals, the Sarbanes-Oxley Act prevents businesses from reporting fake financial information. It requires businesses to certify financial reports by internal management and an independent accountant. Internal departments also have to keep detailed records of each financial year. Companies will face severe fines and liabilities if they fail to produce these records or attempt to make false financial claims.
• Federal Information Security Management Act (FISMA): FISMA focuses on business security measures. The act mandates that companies apply information security systems that protect the confidentiality of their data. It provides minimum requirements for security plans and approves specific software vendors. FISMA outlines different security mandates based on the industry's nature. For instance, the National Security Agency would have stricter guidelines than other agencies.
• The Payment Card Industry Data Security Standard (PCI DSS): This standard was designed to enhance security for credit card transactions. Vendors must meet the PCI DSS standards if they offer a card payment option for their products. To abide by the regulation, businesses must prove they use a secure IT network, regularly test their systems, and integrate access control procedures. 
• Gramm-Leach-Bliley Act (Public Law 106): Another common regulatory compliance example is the Gramm-Leach-Bliley Act. This standard regulates information privacy, internet-based safety, and fair credit transactions. It provides a framework for banks, security firms, and other officials to follow to make these actions safe and secure. The act also requires businesses to explain their information-gathering practices and to guard consumer data.

Companies might have to follow various regulatory compliance standards depending on their industry specifications. For instance, food service companies must follow food handling standards, while a financial services company focuses on cybersecurity to protect client data.

Common Regulatory Compliance Requirements

While compliance requirements vary by industry and situation, they usually consist of requirements like:

• Auditing: During an audit, you analyze your current strategies for compliance practices. Then, you assess any shortcomings and plan for ways to resolve them.
• Testing: This step involves testing your internal procedures to ensure they meet the regulatory guidelines. For instance, you could ensure your cybersecurity plan protects against specific threats.
• Documenting: You also need to document your compliance procedures thoroughly. Take notes on your approach, specific steps and individual outcomes.
• Reporting: Lastly, you must report your documentation to the government to prove you meet the standards.

Benefits of Regulatory Compliance

Following regulatory compliance rules can bring many advantages to your company. Failure to comply could lead to significant fines or even license revocations. Abiding closely by the standards helps your business maintain ethical and governmental standards. In turn, you can maintain a strong brand reputation with other vendors and consumers.

Maintaining compliance with regulatory requirements has other benefits for organizations, including:

• Protects against cybersecurity threats: A significant portion of regulatory compliance focuses on cybersecurity protection. Many companies use digital applications and technologies to complete daily operations. While these solutions boost efficiency and reduce manual errors, they also create vulnerabilities for cyberattacks. However, a robust security plan protects the private data of your company, employees, and customers. Regulatory compliance guidelines can help your organization abide by detailed and comprehensive cybersecurity solutions. 
• Improves business efficiency: Following regulatory compliance standards can also boost efficiency. You have to regularly analyze and report data findings to the government, making proper data management essential. To meet the guidelines, you must find strategies for data organization, storage, transmission, and archiving. Establishing a streamlined data management approach can help your business reach new levels of efficiency. For instance, it might become easier to retrieve and update data. In turn, you can respond to questions or complete reports more quickly.
• Shields your business resources: Lastly, maintaining compliance helps you build a credible reputation for customers and peers. Violations could disrupt your operational goals and cause your brand reputation to suffer. Some cases even result in revoked licenses, which could harm your entire brand or make you halt business proceedings. Or, a data breach could make you lose sensitive client data, harming your loyal customer base. Following compliance regulations eliminates these risks. You can run daily operations smoothly and productively.

Why Is Regulatory Compliance Important?

As the business landscape continues to change, new laws and guidelines are enacted. Keeping up with the laws remains important for business integrity and security. Many organizations have instated positions that focus solely on compliance regulation, such as compliance managers. These roles offer specific guidance on regulatory compliance.

Regulatory compliance strategies can help companies meet specific goals, remain competitive in their industry, and grow their business. Here are other examples of why a regulatory compliance plan is so important:

Regulatory Compliance Constantly Changes

Regulatory compliance changes all the time. As new technologies and applications get introduced to the field, the government passes new regulations to ensure safe usage. Even when you think you have reached complete compliance, something could shift and require you to evolve. 

However, a thorough compliance strategy and a dedicated team can help you meet changing demands. Compliance officer positions allow particular teams to focus on auditing, testing, documenting, and reporting. That way, other departments can focus on daily operational tasks and maintain efficiency. Your compliance team can create and enact a strategy that meets specific industry guidelines. While you cannot prepare for every change and new regulation, having a team and a strong plan in place makes you more adaptable when the time comes.

It Provides Protection for Your Company

Next, a regulatory compliance plan shields your company, employees, and customers. Remember, the intent behind compliance standards is security and integrity. For example, cybersecurity standards protect online data from attacks, while physical safety guidelines shield workers from injury.

Following compliance standards builds a secure business environment for customers and employees. You protect them and their data from cyber-attackers, further cementing trust in your relationships. Regulatory compliance also shields your business from lawsuits and other damaging incidents. You can safely store data, process transactions, and communicate with others without fear of harm.

It Helps You Avoid Consequences

Failing to comply with compliance regulations can have many negative consequences. The government upholds compliance laws strictly and responds to violations with harsh results. If you ignore state or federal laws, you could face consequences like:

• Lawsuits
• Fines
• License revocations
• Jail time

In addition to these legal implications, your business might be unable to maintain efficiency while you deal with these issues. Depending on the nature of your violation, customers might sever ties and find alternatives for your products or services. You might need more revenue for daily operations and be forced into bankruptcy. It might also become harder for you to order goods and services if other companies doubt your credibility. Overall, a compliance offense can have long-lasting implications for business success.

However, a robust compliance plan allows you to avoid these consequences. You can stay informed of important regulatory changes and adapt your strategies as needed. By tailoring your techniques to meet standards, your business remains safe from lawsuits, fines, and other negative outcomes.

It Helps You Maintain a Good Reputation

Next, the importance of regulatory compliance also helps to establish your business's reputation. It takes significant time and resources to develop relationships with consumers and partners. Components like secure transactions and high-quality products reassure customers that you are a reliable provider. However, a compliance misstep could remove months or years spent building partnerships.

For example, failure to meet a compliance standard for cybersecurity might result in a data breach. Customers might lose crucial data relating to login information or payment data. After a significant data loss, your consumers would likely distrust you and halt their subscriptions or purchases. They could also tell others about their experience, further harming your company's brand and reputation. In response, you could see a dip in revenue that becomes difficult to recover.

Maintaining regulatory compliance reduces these risks. You can uphold the highest security standards and shield your customers' data from potential attacks. In response, you can maintain strong relationships and improve your brand reputation. 

It Increases Profitability

Lastly, regulatory compliance is also crucial for profitability. Non-compliance can lead to significant lawsuits and fines, often totaling millions of dollars. Your company might be unable to handle these payments along with your typical operational costs, causing financial strain.

In addition, compliance failure can also lead to costly data breaches. The average breach in the United States costs over $9.4 million, a sum that has steadily grown in recent years. Cyberattacks can cause severe and permanent damage to business infrastructure and technology, making proper protection essential.

Regulatory compliance helps you maintain or increase profitability instead of losing it. You can keep up regular business operations and avoid hefty fines. By improving your brand reputation, you become more likely to expand your customer base and boost overall revenue.

How to Ensure Compliance With Regulatory Requirements for Your Business

Your business is responsible for devising and implementing a comprehensive compliance plan. While specific plans vary by industry type, here are a few general guidelines for all regulatory compliance strategies:

• Conduct an audit: The first step to a new compliance plan is to complete an audit of your current strategies. Look closely at your existing practices and identify gaps or issues. You can investigate security protocols, payment procedures, risk management plans, or anything else that relates to compliance. Once you start noticing violations or problem areas, you can create a plan to address them.
• Hire a compliance officer: Next, your company might choose to hire a compliance officer to help plan and integrate a compliance strategy. A corporate compliance officer can provide specific recommendations for your industry's regulatory needs. They can also enforce a thorough strategy and ensure you maintain compliance with regulatory requirements over time. 
• Implement and enforce new policies: Once you and your officer develop a compliance strategy, you can implement them into business operations. Use regular training and ongoing reinforcement to ensure your company adopts the new policies and follows them correctly.
• Establish training: All employees should understand the importance of compliance standards. Thorough training is important to ensure your entire team understands proper practices and guidelines. You can integrate compliance regulations into onboarding routines and conduct consistent training for current employees. Remember to update employees on changes, giving details on how the alterations will impact their work.
• Complete regular updates: Lastly, it is important to remember that regulatory compliance is an ongoing strategy. After you implement new protocols, conduct regular audits to analyze whether they meet regulations. New governmental updates might also cause you to alter your strategies. You can set workflows and integrate compliance audits into regular operations. In turn, you can remain proactive against emerging cyber threats.

Learn More About BDO Digital Services Today

Regulatory compliance is crucial for the security and success of businesses. A major component of compliance is cybersecurity strategies. At BDO Digital, we understand the importance of comprehensive security and compliance measures. We provide a range of cybersecurity solutions that can protect your business's data and prevent attacks.

BDO Digital also offers security compliance consulting to help you meet governmental standards. Our team has decades of experience across countless industries. We can identify compliance standards and point out potential issues in your current strategies with tools like:

• Compliance reports
• Self-assessment questionnaires
• Security testing techniques

To get started with BDO Digital Services, contact us today.