Regulatory compliance typically includes financial controls.
Regulatory compliance is an entity's adherence to the rules and laws that govern its activity . It involves accepting the obligations imposed by those rules that regulate its operation.
It should be noted that the term compliance refers to the act and consequence of complying: a verb that, in this context, refers to executing, satisfying or abiding by . The normative , meanwhile, is that which is linked to the norms (guidelines, precepts, provisions or orders).
What is regulatory compliance?
Compliance is the observance of laws and regulations . The concept, also referred to as compliance , refers to the procedures and practices of corporate governance to ensure that the company remains within the limits set by international, national, regional and local regulations.
There is a legal compliance that, in its very essence, is obligatory: it is not possible to choose whether to comply with the law or not. That is why breaking a law constitutes a crime and involves an action (or omission) that is punishable. However, there are also other types of compliance associated with codes of conduct, protocols or standards that relate to business ethics and corporate social responsibility.
Compliance policies can be assessed through both external and internal audits. In large corporations, there is the position of compliance officer , who is the executive in charge of ensuring that the company's operations comply with regulations and requirements.
A compliance audit requires transparency in operations.
Implementation of a compliance program
Implementing a compliance program is key for an organization to avoid the materialization of risks arising from failure to comply with legal obligations and regulations in general . This type of program provides a structure for internal control to be effective.
Through this type of program, the aim is to ensure that the firm's performance is carried out within the legal framework. In this way , fines, sanctions and punishments that can affect its operation and image are avoided .
A central aspect of these systems is the identification and assessment of legal risks . It must be taken into account that, while non-compliance with regulations may be the result of a conscious decision, it may also be the result of ignorance.
The implementation of a compliance program helps to detect risks and then apply the appropriate measures to prevent them from materializing. If a compliance officer is available, this professional must inform senior management in detail about the status of the situation so that the necessary decisions can be made.
Taking these issues into account, it is clear that these compliance policies must have the support of the company's owners or managers and the commitment of all employees. It is also essential that activities are monitored continuously: it is not enough to determine that all regulatory risks are under control at a particular time, since reality is dynamic and the company's activities and even laws or rules can change.
Regulatory compliance is associated with the management of legal and other risks.
Types of regulatory compliance
While regulatory compliance can be discussed in a broad and general sense, it is also possible to distinguish between various types of compliance.
Legal compliance is that which guarantees respect for the laws. Sometimes it is specifically referred to as criminal compliance , which, as its name indicates, focuses on criminal laws.
Financial compliance , on the other hand, refers to accounting provisions and those linked to financial management. The idea of tax compliance , on the other hand, specifically mentions tax obligations.
Compliance with privacy and data protection is also noted, which has to do with the acceptance of regulations that ensure information security. Another security compliance is that related to occupational health and the physical and psychological care of workers.
Compliance with environmental regulations is also part of compliance with regulations that aim to minimise the ecological impact of industries. It is linked to waste management regulations, sustainability regulations, etc.
It is worth noting that the notion of corporate compliance is also proposed. In this case, the aim is to ensure compliance with internal policies and values.
Another classification distinguishes between mandatory regulatory compliance and voluntary regulatory compliance . With the former, the company is obliged to comply with regulations and standards by law or by provisions of the competent authorities or regulatory bodies. When compliance is voluntary, on the other hand, adherence is usually due to the intention of strengthening the image or achieving a competitive advantage. There are authors who recognize an intermediate point between mandatory and voluntary regulatory compliance: that which arises from the pressure or influence of investors, suppliers or customers.
Some examples
Let's take the case of a company in the food industry. This company complies with all health regulations and product labelling regulations . Beyond these obligations that avoid legal risks, it also commits to compliance with quality standards and has certificates that reflect compliance with several ISO standards .
Let us now consider an automotive manufacturer that respects labour laws and human resources regulations . Regardless of this mandatory compliance, it applies anti-discrimination policies in the management of its workforce that are in line with gender equality legislation but that transcend it.
Compliance shortcomings
Although the benefits of compliance are evident, there are analysts who warn of its shortcomings or limitations as a management policy. It is noted that, sometimes, these programs are aimed at passing a kind of exam but do not contribute to the development of a corporate philosophy based on ethics and social responsibility .
It is also often pointed out that the effectiveness of these practices is not always adequate due to multiple factors. The absence of specific training in these matters and the lack of resources can lead to the fact that, even with a regulatory compliance system, the company continues to deal with multiple risks.