Guest Column

Importance of Compliance Regulations in Today's World

March, 2019

The world we live in is becoming very convenient at some level, and at the same time, the risks have gone up considerably. Hence it is very important to understand a topic like regulatory compliance.  A compliance often encompasses these values, its ethics policy, the employee handbook, and policies for complying with legal obligations. The first formal work on Regulatory Compliance was published in 2007, where the official definition was laid out as "the integrated collection of capabilities that enable an organization to reliably achieve objectives, address uncertainty and act with integrity." The research referred to common "keep the company on track" activities conducted in departments such as internal audit, compliance, risk, legal, finance, IT, HR as well as the lines of business, executive suite and the board itself.

Why is compliance necessary?

Compliance means conforming with stated requirements. An organization is known by three points.

a) What it does?
b) How does it do it?
c) Why does it do it?

The biggest benefit compliance brings in is the element of trust. Without a compliance function, there will be no trust among businesses or in between a business and a consumer.  This can often lead to reputation damage. As new ventures are coming up by the day, establishing trust and maintaining it is essential.

Compliance helps define an organization’s the how and the why.  What an organization does is often not a true differentiator. With a strong compliance structure in place, how and organization produces what it produces becomes part of their DNA. The why part describes the value behind what the company does. Research has shown that the value system of companies resonates more with their customers than anything else. Compliance helps to regulate an organization’s value system. Indirectly, this is the single most important point that enforces the value system in a consistent manner.

Another area where compliance has resulted in some unintended good consequence is that is has helped harbor innovative practices. Old organizations are criticized for being too traditional. However compliance has proven to be an innovation catalyst in terms of adopting new age technologies.

Finally, like in any manufacturing process, there are quality checks in place, to ensure quality control. This is the precise function of compliance in most organization.

Some typical sector where compliance is at the forefront

The following sectors a believed to be the most regulated sectors.

  • Telecommunications

  • Healthcare and life sciences

  • Rail, airline, shipping and pipeline transportation

  • Oil and gas

  • Electric power and transmission

  • Financial services and trading

In these sectors, function of compliance is to mitigate risks, enhance consistency, protect consumers against massive pricing threats, and above all, ensure safety.  The problem of compliance is compounded as regulatory compliance varies not only by industry but often by location. The financial services, research, and pharmaceutical regulatory structures in may differ from one country to another. It can even vary at city and state levels. These similarities and differences, like laws, are often a product "of reactions to the changing objectives and requirements in different countries, industries, and policy contexts.

Why do organizations be complaint?

Besides the quality and trust consideration, organizations can suffer from punitive measures, if they fail to be compliant. In sensitive sectors such as healthcare and finance, the ultimate penalty could be closure of business. Even if you ignore the extreme consequences, the below statistics in the financial services industry could throw some light at the cost of non-compliance.

  • Banks paid an excess of $42 billion in fees for non-compliance infractions in 2016

  • The estimated cost for MiFID II compliance set to launch in January 2018 is $800 billion.

  • Since the financial crisis of 2008, banks have paid over $204 billion in compliance related fines and infractions.

  • One New York bank was ordered to pay fines of $185M for failing to comply with rules intended to protect client assets in 2015.

The challenges in being compliant

As number of regulations are increasing by the day, the complexity to abide by them has become quite challenging.  Coupled with that there is a increasing demand for operational transparency, which being compliant, so organizations are adopting the use of consolidated set compliance controls to meet these objectives. Certainly, in whatever industry an organization is a part of, compliance it becomes a painful task to ensure their organization is compliant. Add to that the escalating and ever-changing demands of today’s regulatory environment are unlikely to subside anytime soon. This, coupled with the residual effects of the global financial crisis, make it a challenging time for compliance practitioners. Change in political environments, such a Brexit, can lead to major regulations being replaced by new one. For example, LIBOR which serves as a globally accepted key benchmark interest rate that indicates how much does it costs to the banks to borrow from each other, maybe replaced by a new regulation.

New Possibilities and Impact

In the recent times, the chief compliance officer (CCO) has come into existence, whose primarily responsibilities involve overseeing and managing regulatory compliance issues within an organization. The role has long existed at companies that operate in heavily regulated industries such as financial services and healthcare, but other the importance is every industry has been growing.

New competitive threats, ongoing cost pressures, aging technology, increasing regulatory requirements are among the forces that demand significant change and entirely new business models. Achieving compliance only through manual process has become inefficient and expensive. This has made digital transformation and process automation, the key drivers to achieve compliance, in a cost effective, timely, and consistent manner.

- Vijaykant Nadadur
Co-Founder & CEO

Author Bio:Vijaykant Nadadur (Vijay) is the Co-Founder & CEO of Stride.AI. His expertise spans in the areas of Artificial Intelligence and Natural Language Understanding. A suave public speaker, he was invited to speak at the World Forum for Responsible Economy, in Lille, France. He is also a mentor at the prestigious accelerator programs, Techstars Paris and Bangalore. He has lived in 6 different countries and speaks 7 different languages.