Regulatory compliance often includes financial controls.
Regulatory compliance is an entity's adherence to the rules and laws that regulate its activity . It is about the acceptance of 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 . The normative , meanwhile, is what is linked to the norms (guidelines, precepts, provisions or orders).
What is regulatory compliance
Regulatory compliance is compliance with laws and regulations . The concept, also mentioned as compliance , refers to the procedures and practices of corporate governance so that the company remains within the limits set by international, national, regional and local regulations.
There is legal compliance that, in its very essence, is mandatory: it is not possible to choose whether the law is complied with or not. That is why breaking a law constitutes a crime and involves an action (or omission) that is punished. However, there are also other types of compliance associated with codes of conduct, protocols or standards that are related to business ethics and corporate social responsibility.
Regulatory compliance policies can be evaluated through both external audits and internal audits . In large corporations there is the position of compliance officer , which is the executive in charge of ensuring that the company's operations comply with standards and requirements.
A regulatory compliance audit requires transparency in operations.
Implementation of a compliance program
The implementation of a regulatory compliance program is key for an organization to avoid the materialization of risks derived from lack of obedience to legal obligations and provisions in general . This type of program offers a structure for effective internal control.
Through a program of this type, the aim is to ensure that the firm's performance is carried out within the legal framework. This avoids fines, sanctions and punishments that can affect its operation and image.
A central aspect of these systems is the identification and evaluation of legal risks . It cannot be ignored that, although regulatory non-compliance can be the result of a conscious decision, it can also be a consequence of ignorance.
The application of a compliance program helps to detect risks and then apply the relevant measures to prevent their materialization. If you have a compliance officer, this professional is the one who must inform the top managers in detail about the status of the situation so that the necessary decisions can be made.
Taking these issues into account, it is evident that these regulatory compliance policies must have the support of the owners or managers of the company and have the commitment of all workers. Likewise, it is essential that the monitoring of activities be permanent: it is not enough to determine that at a particular moment all regulatory risks are controlled since reality is dynamic and the activities of the firm and even the laws or rules can change.
Regulatory compliance is associated with the management of legal and other risks.
Types of regulatory compliance
Although we can speak of regulatory compliance in a broad and general sense, it is also possible to distinguish between various types of compliance.
Legal regulatory compliance is that which guarantees respect for the laws. Sometimes criminal regulatory compliance is specifically referred to, focused as its name indicates on criminal laws.
Financial regulatory compliance , for its part, refers to accounting provisions and those linked to financial management. The idea of tax compliance , for its part, specifically refers to tax obligations.
Compliance with privacy and data protection is also noted, which has to do with the acceptance of regulations that ensure the security of information. Another safety compliance is that related to occupational health and the physical and psychological care of workers.
Respect for environmental regulations is also part of compliance with regulations that aim to minimize the ecological impact of industries. It is linked to waste management regulations, sustainability regulations, etc.
It should be noted that the notion of corporate regulatory compliance is also postulated. In this case, the aim is to ensure compliance with internal policies and values.
Another classification distinguishes between imperative regulatory compliance and optional regulatory compliance . With the first of them, the company is obliged to respect regulations and standards by legislation or by provisions of the competent authorities or regulatory bodies. When compliance is optional, however, adhesion is voluntary and is usually due to the intention of strengthening the image or achieving a competitive advantage. There are authors who recognize an intermediate point between imperative and optional regulatory compliance: that which arises from the pressure or influence of investors, suppliers or clients.
Some examples
Take the case of a company in the food industry. This company complies with all health regulations and product labeling regulations . Beyond these obligations that avoid legal risk, it is also committed to compliance with quality standards and has certificates that reflect compliance with various ISO standards .
Let's now think about an automotive manufacturer that respects labor laws and human resources regulations . Regardless of this imperative compliance, it applies anti-discrimination policies in the management of its workforce that are in line with gender equality legislation but transcend it.
Regulatory Compliance Shortcomings
Although the benefits of regulatory compliance are evident, there are analysts who warn about its shortcomings or limitations as a management policy. It is noted that, sometimes, these programs are aimed at passing a type of exam but do not contribute to the development of a corporate philosophy based on ethics and social responsibility .
It is also often noted 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 mean that, even with a regulatory compliance system, the company continues to deal with multiple risks.