Finserv Glossary

Regulatory Compliance

Table of Contents

What is Regulatory Compliance?

naehas glossary regulatory complianceRegulatory compliance is the rules and regulations that your business must follow. The authoritative bodies that your business must stay in compliance with will vary based on your industry. For example, financial service companies are required to understand the rules laid out by the Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, and the Federal Trade Commission. On the other hand, a manufacturing business must comply with Occupational Safety and Health Administration and the Food and Drug Administration.

Regulatory compliance is different from corporate compliance. Regulatory compliance focuses on adhering to laws set out by the government, while corporate compliance means following internal compliance regulations. Companies may be required to follow local, state, federal, and international guidelines to remain in compliance.

Why is Regulatory Compliance Important?

The number of rules that businesses must follow has been steadily increasing over the past few years as technological advancements and consumer preferences continue to shift. For example, a few decades ago, there was no such thing as the internet or digital assets. Now, these items are the driving forces behind the economy, making it important to have the proper regulations in place for both consumer and corporation well-being.

Regulatory compliance in your organization should be a top priority. Maintaining proper compliance allows you to reduce the risk of security breaches and data losses. In addition, prioritizing compliance helps your organization avoid license loss, financial penalties, reputation damage, and high customer turnover.

How Does Regulatory Compliance Affect Financial Service Businesses?

The financial service sector is one of the top regulated industries. Over the past few years, the banking, wealth management, and insurance industries have experienced major trends, such as the shift to cloud banking and online transaction processing. The use of the internet presents a new set of compliance challenges for the financial service industries. The government routinely passes privacy protection bills, restricting the operations of your financial service business.

In addition, most financial service businesses have global reach, subjecting your business to the specific rules set forth by each country. For example, a bank in Turkey has different data protection and compliance rules compared to the United States. The inability to understand and adapt to the regulations imposed by each jurisdiction risks business shutdowns and penalties.

naehas glossary regulatory compliance 1What is the Impact of Noncompliance?

The impact of noncompliance with laws and regulations has more than just a monetary impact on your company. Customers in financial service businesses are more likely to go with trusted companies that have maintained proper compliance. For example, if a customer reads online about a recent data breach or penalty imposed by the CFPB, they may hesitate to enlist your company for financial services.

In addition, lawsuits from consumers are a growing risk of noncompliance. For example, Target recently paid $18.5 million to settle claims, while Nationwide Insurance racked up $5.5 million in fines. Lawsuits and penalties can have a serious impact on the financial health of your company.

Moreover, one compliance mishap can wipe out years of building your companys reputation with other businesses and customers. For example, if you violate FDA regulations, you might lose access to customers that want third-party assurance on the funds deposited at your bank.  

How Can Financial Service Businesses Meet the Demands of Regulatory Compliance?

The regulatory compliance realm is constantly changing. This means that your business needs to have the resources to adapt and overcome changes at a moments notice. Here are a few different ways that businesses in the financial service sector can meet the demands of regulatory compliance.

Complete a Compliance Audit

The first step in implementing the right compliance procedures is understanding the areas where your business falls short. The goal of a compliance audit is to detect where inefficiencies exist and highlight the strengths of your company.

Assessing risk not only allows you to identify the probability of noncompliance occurring but also outlines the quantitative and qualitative impact on your business. Once you have identified compliance weaknesses, you can take actionable steps toward improvement.

In addition, analyze how much noncompliance has cost your business in the past. Doing this can help you create a compliance budget and safeguard your financial health if noncompliance does occur.

Employ a Compliance Officer

Having a dedicated regulatory compliance employee can also promote following all laws and rules your business is subject to. A Corporate Compliance Officer, known as a COO, is tasked with supporting the ethics, accountability, and integrity of the organization.

Maintaining regulatory compliance and minimizing risk is a time-intensive role. Instead of trying to spread out the duties across upper management, it might be more cost-effective to open a position that focuses on compliance.

Create Internal Company Policies

Internal corporate compliance is important to ensure that employees maintain effective internal controls to minimize noncompliance risks. Having a compliance handbook is only half the battle of supporting internal company policies. Managing which employees have read the compliance handbooks is another task in itself.

Showing that employees have read and acknowledged the policy is an important factor when proving compliance. If an employee does engage in noncompliance with guiding regulations, your company has proof to pursue action against that employee.

Hold Regulatory Compliance Training

Training your employees on updates and changes to corporate compliance policies is important. Maintaining regulatory compliance isnt a one-and-done program. It takes continuous tweaking and reviewing to minimize threats and promote the success of your business. Frequent regulatory compliance training helps keep everyone in your company on the same page.

Enlist Expert Help

Managing regulatory compliance on your own isnt always the best idea. Having an independent third partys opinion can draw out inefficiencies your team missed and provides creative solutions to promote compliance.

Thats exactly what we do at Naehas. We work with you to bring your marketing and compliance to the next level. Reach out today to learn more.