Compliance Management: Your Complete Guide

Just as a citizen has to obey the rules and laws of their country, a business has to abide by a specific set of rules and legal boundaries set by the government and regulatory authorities. In business parlance, this is known as ‘compliance.’ Compliance is the broad structural framework by which companies are expected to abide by industry-specific guidelines, as well as local or federal regulations and laws that streamline operations.

The compliance management system is the coordinated program that governs this system and is responsible for maintaining policies, training employees, and collecting evidence for accrediting bodies and regulators. This system gets you compliance-ready by overseeing the enforcement of security controls, internal audits, a wide range of technologies, third-party risk assessments, and more.

In this article, we will explore the importance of compliance management, emphasizing the crucial aspects of adhering to security standards, key challenges, and how you can systematically overcome them.

What is compliance management?

Compliance management is the process of monitoring, assessing, and tracking systems to ensure adherence to applicable industrial, governmental, or regulatory requirements. Some compliance management examples are: 

• Corporate Compliance: It encompasses internal procedures, rules, policies, behavioral standards, and performance standards that every employee in the organization has to follow.
• Regulatory compliance: This includes adherence to laws, regulations, and rules by external entities like employee unions, governments, regulatory bodies, or industry standards. Examples include GDPR, FCRA, CCPA, HIPAA, OFDSS, SOC2, FDIC, and ISO 27001. 

Depending on the type of service you provide and the industry regulations applicable, you may need to comply with more than one regulation. The above are just a couple of examples. Keeping up with multiple regulations with distinct requirements is not easy. This is where a compliance management system comes in.

Importance of compliance management 

Compliance management enables businesses to avoid legal complications, support risk management strategies, ensure business continuity, improve operational effectiveness, and maintain reputation by mitigating the impacts of security breaches. 

Here are four reasons why compliance management is integral to the business’s success:

1. Protection from legal penalties

Failing to comply with relevant laws and regulations is prohibitively expensive. On average, the cost of non-compliance is 2.71 times that of compliance.

In 2021, Toyota paid $180 million for violating the Study: Total Cost of Compliance with Data Protection Regulations Clean Air Act Protocol. Southern Water paid £90 million for illegal discharges of sewage that polluted rivers and coastal waters.

Even worse, failure to comply can lead to suspending services or products. For instance, the Consumer Product Safety Commission (CPSC) can ban toys, appliances, and tools that pose a consumer risk. The Environmental Protection Agency (EPA) can shut down organizations that violate environmental laws.

2. Shields from data breaches

The lack of preventive measures makes organizations vulnerable to data breaches. Cybersecurity practices like remote monitoring, data encryption, and multi-factor authentication help businesses avoid security incidents. Compliance audit programs ensure organizations identify system vulnerabilities and proactively fix security issues.

For example, data protection regulations like the General Data Protection Regulation (GDPR) in the EU or the California Consumer Privacy Act (CCPA) enforce data protection regulations, consequently preventing potential data breaches.

3. Maintains reputation and trust

Compliance frameworks like ISO and SOC 2 helps organizations demonstrate good security practices to customers and stakeholders. 

Compliance can be your business’s superpower as it demonstrates a commitment to ethical business practices. However, an increasingly complex global regulatory and enforcement agenda presents some unique challenges.

How to implement a compliance management process?

The road to effective compliance management should be proactive and systematic. While the devil is in the details, certain steps apply to every organization.

Here are 5 compliance management steps:

Identify relevant laws and regulations

The first step to compliance management is identifying the laws and regulations that apply to the business. For example, SaaS firms that process personal data on behalf of their clients must comply with data protection laws, such as the General Data Protection Regulation (GDPR) in Europe or the California Consumer Privacy Act (CCPA) in the United States.

Perform risk analysis

Once you have identified the applicable laws and regulations, perform a risk assessment. 

Pinpoint areas for improvement and evaluate which systems and processes pose non-compliance risks. For a SaaS company, this commonly involves conducting a thorough review of data processing practices, identifying potential security risks, evaluating the effectiveness of existing policies, and then prioritizing the remedy according to criticality.

Create compliance rules and regulations

The next step is to develop comprehensive compliance management guidelines and systems to address the identified risks and meet the requirements of relevant laws and regulations. Furthermore, organizations must implement policies and procedures to ensure actual compliance. An example of regulatory compliance management is data protection.

For example, a SaaS firm must implement policies regulating how the company securely stores, processes, and transmits personal data as per data protection laws.

On the other hand, a corporate compliance guideline would be a code of conduct. The policy would explain how employees must deal with company assets, gifts, conflicts of interest, donations, etc.

Also check out: Guide to Compliance budget planning

Train employees on compliance

There needs to be more than just developing a compliance guideline. To ensure consistent implementation, organizations have to create a culture of compliance. To that end, training employees on the policies and procedures is crucial, and it helps them adhere to compliance requirements and understand their role in ensuring compliance. Managing compliance also involves establishing a compliance team to monitor and enforce compliance.

Regularly review and update policies

Continuous monitoring and review is the final step to effectively manage compliance over time. Review policies and processes, conduct internal audits, and assess the effectiveness of the compliance management system. Moreover, update the system when necessary to remain compliant with new legislation affecting the industries.

Compliance management challenges: Never caught off guard

With the growing number of cyber crimes, navigating the landscape of compliance management presents businesses with various challenges such as increased regulations. Accenture reports that environmental, social, and governance (ESG) concerns, changing business models, and overstretched compliance staff all hold the potential for untold damage because they prevent adherence to the letter of the law.

Here are some compliance management challenges listed below: 

Lack of resources

The core of compliance management is establishing well-defined policies and safeguards. While creating procedures is one thing, implementing and adhering are different stories. 

Then there is the size of the business, and the larger it is, the harder it is to spot irregularities and non-compliant processes.

And that’s where most businesses dont square up. They often lack human resources, time, and technology to manage compliance smoothly. As a result, they end up using fragmented channels like emails, spreadsheets, and an asynchronous data system that results in erratic compliance.

Keeping up with changing regulations

Another compliance management challenge is keeping up with the warp-speed changes in the regulatory environment. It’s constantly evolving, growing more complex each year due to external forces like rapid tech adoption. 

This places a lot of pressure and challenges on companies to remain compliant.

For instance, the pandemic increased the amount of personal data processed and handled by organizations. Consequently, the European Data Protection Board (EDPB) issued compulsory guidance for health-related businesses.

To make things more complex, every country and industry has specific regulators, making compliance more challenging for businesses operating across multiple verticals. This can make compliance management somewhat chaotic. 

Recommended: Compliance management tools

Misunderstanding regulations

Many regulations, standards, and specifications are complex by nature. In many cases, it leaves a lot of room for interpretation, leading to confusion and unintentional non-compliance. 

For example, GDPR requires organizations to obtain explicit and specific consent from individuals to process their data. However, the regulation does not clearly define what constitutes valid consent.

Get rid of all of these challenges with the help of compliance automation.

3 compliance management approaches

Given the importance of the compliance management process and its complexities, organizations can employ any of the three compliance management approaches: 1) a Strict, top-down method with defined commands, 2) a Hands-off approach that offers flexibility, or 3) Shared or distributed approach that offers collective accountability.

1. Strict, top-down method 

Strict, top-down method is a rigid compliance management approach that involves strict enforcement of regulations. Compliance programs are highly structured, and employees must follow the established protocols and procedures. Barring a few exceptions, there is no room for negotiation or flexibility, and not adhering to the rules can land you in hot waters.

This method is used in highly regulated industries, such as healthcare and finance, where there is a high degree of scrutiny from regulators. Organizations using this approach focus on compliance with specific laws, regulations, and standards.

Example of a Strict, top-down method

A FinTech firm adopting a rigid compliance management approach to ensure adherence to banking regulations, such as the Bank Secrecy Act (BSA) or the Anti-Money Laundering (AML). It would have stringent policies and procedures for performing customer due diligence, maintaining records, and reporting suspicious activity. The top authorities would ensure they are enforced across the firm.

2. Hands-off and flexible

The second approach to compliance management offers more leeway. 

In this case, organizations create a compliance system where standards can be relaxed if they improve productivity and don’t impact legal or ethical practices. 

This approach is also:

• More adaptive to changing laws, regulations, and business needs.
• Focuses on identifying the critical legal and regulatory requirements relevant to the business and creating rules that enable users to make decisions on any particular law, policy, or regulation.
• Implements measures to minimize the risks associated with non-compliance.

This adaptability is essential for businesses that follow standards that overlap or may conflict with each other. 

Example of hands-off and flexible 

A global SaaS company operating in 4 countries would be better off with a flexible compliance management approach to accommodate each country’s varying data protection regulations. 

They would identify the essential requirements and implement policies and procedures to meet them in that country while allowing for flexibility to respond to any changes.

3. Shared or distributed method

The third approach involves internal collaboration between departments and stakeholders to manage compliance. Organizations using this approach create a culture of compliance as a shared responsibility. Everyone is a partner in upholding the rules and regulations, so employees are given training and resources to support the same.

Example of Shared or distributed method

Suppose an organization uses the partnership approach to manage compliance with the US Foreign Corrupt Practices Act (FCPA), it would establish cross-functional teams to develop and implement procedures that prevent bribery and corruption.

The best compliance management approach for an organization depends on factors like the nature of the business, the regulatory environment, and the level of risk. Regardless of the chosen approach, it is crucial to have a comprehensive compliance system to ensure compliance with relevant laws, regulations, and standards.

Also find out: What is a compliance management system?

Staying ahead with Sprinto

Compliance management is a continuous process that builds a culture of compliance and helps you gain a competitive edge. With evolving compliance regulations, those who leverage robust compliance are guaranteed to stay ahead in the game. 

Sprinto is a comprehensive compliance management software that offers functions like risk and policy management, audit trails, incident response, employee training programs, and reporting; these solutions bring transparency and efficiency and help you respond to evolving regulatory requirements. The platform works with any cloud setup, helps monitor entity-level risks, and manages all aspects of a security compliance program—launching, monitoring, and auditing—from one place. 

Sprinto has been recognized as the category leader by G2. Want to build a customized compliance management plan for your organization? Speak to our experts today.

FAQs 

What is the purpose of compliance management?

Compliance management ensures that an organization follows the regulations and laws relevant to its business and mitigates financial and legal risks.

What are some compliance management examples?

An example of compliance management is access control measures such as multi-factor authentication, restricting access to sensitive information, and preventing unauthorized access. Encryption of sensitive customer data or financial information protects it from being intercepted or stolen during transmission or storage.

How do you stay on top of compliance management?

Here are a few tips to stay on top of compliance

• Knowledge of current laws and regulations
• Performing regular internal audits
• Consulting auditors and security specialists
• Utilizing compliance automation software

Is compliance management necessary for every organization?

Compliance management is not mandatory for all organizations but is highly recommended. Effective compliance management ensures that businesses adhere to relevant laws, regulations, and industry standards, reducing the risk of legal issues and fostering a culture of ethical and responsible practices.