Compliance

What is compliance?

Compliance is the state of being in accordance with established guidelines or specifications, or the process of becoming so. Software, for example, may be developed in compliance with specifications created by a standards body, and then deployed by user organizations in compliance with a vendor’s licensing agreement. The definition of compliance can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation.

Compliance is a prevalent business concern, partly because of an ever-increasing number of regulations that require companies to be vigilant about maintaining a full understanding of their regulatory requirements for compliance. To adhere to compliance standards, an organization must follow requirements or regulations imposed by either itself or government legislation.

What is regulatory compliance?

Regulatory compliance is an organization’s adherence to laws, regulations, guidelines and specifications relevant to its business processes. Violations of regulatory compliance often result in legal punishment, including federal fines.

Examples of regulatory compliance laws and regulations include the Payment Card Industry Data Security Standard (PCI DSS), Health Insurance Portability and Accountability Act (HIPAA), Federal Information Security Management Act (FISMA), Cybersecurity Maturity Model Certification (CMMC), and many others. 

Why is regulatory compliance important?

As the number of rules has increased since the turn of the century, regulatory compliance management has become more prominent in a variety of organizations. Regulatory compliance processes and strategies provide guidance for organizations as they strive to attain their business goals. Audit reports proving compliance help companies market themselves to customers. Being transparent about compliance processes helps clients build trust in business processes, as well as potentially improve the profitability of the company in the process.

Some regulatory compliance rules are designed specifically to ensure data protection. Poor data breach compliance processes can hurt customer retention and negatively impact a company’s bottom line. With the frequency of data breaches continuing to increase, consumers are placing more trust in companies that closely follow regulatory compliance mandates designed to protect personal data.

If understood and implemented correctly, compliance can help to rationalize security expenditure and reduce the impact of cybercrime, while giving a business a competitive edge.

How is compliance different across industries?

Some industries are more heavily regulated than others. For example, the financial services industry is subject to regulatory compliance mandates designed to protect the public and investors from nefarious business practices. Energy suppliers are subject to regulations for safety and environmental protection purposes. Government agencies are required to follow compliance regulations that mandate equality and ethical staff behavior.

Healthcare companies are also subject to strict compliance laws because they store large amounts of sensitive and personal patient data. Hospitals and other healthcare providers must demonstrate they have taken steps to comply with patient privacy rules, such as providing adequate server security and encryption. HIPAA outlines data privacy and security mandates designed to secure patients’ medical information. The HIPAA Breach Notification Rule, for example, requires compliant organizations and their business associates to notify patients following a data breach. In addition to healthcare providers, cloud service providers (CSPs) and other business associates of healthcare organizations must also comply with HIPAA privacy, security and breach notification rules.

What are challenges that come with regulatory compliance?

Companies that do not follow mandatory regulatory compliance practices face numerous possible repercussions, such as being forced to participate in remediation programs that include on-site compliance audits and inspections by the appropriate regulatory agency. Noncompliant organizations usually face monetary fines and penalties. Brand reputation can also be damaged by companies that experience repeated — or particularly glaring — compliance breaches.

Following compliance rules can be costly from an infrastructure and personnel standpoint. As companies are required to spend capital in order to comply with compliance laws and regulations, they must also try to appease stakeholders and maintain business processes by turning a profit. These financial challenges surrounding compliance are particularly acute in highly regulated industries, such as finance and healthcare. Other business strategy-associated challenges that come with maintaining regulatory compliance include the following:

  • determining how emerging regulations will influence business direction and existing business models;
  • incorporating and developing a compliance culture and promoting this culture throughout the organization;
  • deciding on and hiring compliance roles and accountabilities, as well as the compliance functions required by legal, compliance, audit and business departments; and
  • anticipating compliance trends and integrating regulatory processes that increase efficiency.
 

Constantly evolving consumer technologies also pose compliance complications for companies. The use of personal mobile devices by employees in the workplace, for example, creates compliance concerns because these devices store sensitive, compliance-relevant company data. The proliferation of the internet of things has led to huge growth in the number of endpoints and interconnected devices, and lacking security for mobile and IoT devices creates compliance vulnerabilities in organizations’ networks. For digitized companies to remain compliant, they must stay on top of required updates and immediately patch existing software when vulnerabilities are detected.

How do companies ensure regulatory compliance?

Regulatory compliance requires companies to analyze their unique requirements and any mandates specific to their industry and then develop processes to meet these requirements. Typical steps to achieve regulatory compliance include the following:

  1. Identify applicable regulations. Determine which laws and compliance regulations apply to the company’s industry and operations. These include federal, state and municipal rules.
  2. Determine requirements. Identify the requirements in each regulation that are relevant to the organization, and consider plans on how to implement these mandates.
  3. Document compliance processes. Clearly document compliance processes, with specific instructions for each role involved in maintaining compliance. This information will be useful during regulatory audits.
  4. Monitor changes, and determine whether they apply. Compliance requirements are updated constantly. Changes must be monitored to determine if they are relevant to the company. If they are, implement updated procedures, and train the appropriate staff on these updates.
 

In-house compliance audits should be conducted regularly to review the organization’s adherence to regulatory guidelines. These in-house audit reports should closely evaluate compliance processes and their associated policies, such as user access controls.

In-house audits also help prepare for externally conducted, formal compliance audits carried out by independent third parties. These audits are required under some regulatory compliance mandates and are designed to measure if an organization complies with specific state, federal or corporate regulations.

Regulatory compliance vs. corporate compliance

There are two main types of compliance that denote where the framework is coming from: corporate and regulatory. Both corporate and regulatory compliance consist of a framework of rules, regulations and practices to follow.

  • Corporate compliance applies to the rules, regulations and practices an organization puts into place for compliance — according to both external regulations and internal policies.
  • Regulatory compliance applies to the rules, regulations and practices an organization puts into place for compliance — according to external regulations.

Corporate and regulatory compliance are very similar, with their main difference being whether their policies come from internal or external regulations.

Best practices and strategies for compliance

To ensure an organization follows compliance laws or regulations, they should follow these best practices:

  • Determine compliance goals. Focus on the areas of compliance the organization needs to improve the most, such as a specific regulation, law or a violation that is costing the organization money.
  • Know the regulatory environment. Laws and regulations may change over time, so having staff members — either as a part of a compliance department or otherwise — who keep up to date on new regulations relevant to the organization’s industry is a good idea.
  • Implement compliance tools. Compliance tools can automatically track data, aiding in compliance risk management.
  • Hold compliance audits. An in-depth review of regulatory compliance areas ensures an organization is following compliance regulations correctly and can help identify areas an organization needs to improve.
  • Review compliance regulations regularly. A regular review helps find weak points and gives an organization a chance to improve and keep its compliance efforts up to date.
  • Train employees for compliance policy. If employees cannot follow compliance policies, then the organization cannot fully adhere to the policies. Employees should be trained and made aware of relevant policies and be held accountable when policies are not followed.
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