Corporate governance expert Nygina Mills discusses the critical role of compliance in building resilient businesses that can withstand regulatory and market changes. You can learn more about her background and how she helps businesses with regulations focusing on compliance risk and legal oversight in her YouTube video.
Perhaps now more than ever, the resilience of a business is frequently tested by its ability to adapt to regulatory changes and market challenges. Resilient businesses are not just those that survive over the long term but thrive in the face of disruptions.
Central to fostering this resilience is the role of compliance in risk management. Compliance ensures that a business adheres to laws, regulations, and ethical standards, which shields the company from fines, legal penalties, and reputational damage.
The concept of compliance extends beyond mere adherence to legal standards. It encompasses a proactive approach to managing risks that a business faces internally and externally. A robust compliance program can forecast potential challenges in the regulatory environment, providing a business with the necessary tools to adjust swiftly and efficiently. This capability to anticipate and mitigate risks before they manifest as tangible threats is what separates resilient businesses from their counterparts.
Let’s explore how a proactive, comprehensive compliance framework can be a cornerstone of successful risk management strategies, and thus, a pivotal element of business resilience.
Compliance as a Strategic Ally in Risk Management
Understanding Compliance in Context
Traditionally, compliance has been viewed as a bureaucratic checklist—something businesses are compelled to follow due to legal requirements. However, this perspective has shifted dramatically.
Today, compliance is increasingly integrated into strategic planning, offering businesses a competitive advantage. Effective compliance programs not only detect and prevent violations but also position a company to react agilely to legislative changes.
Risk Identification and Mitigation
One of the primary functions of compliance in risk management is the identification and mitigation of risks. This involves detailed risk assessments which consider not only the current regulatory landscape but also projections of its future trajectory.
For example, the finance sector has seen a significant increase in regulatory technology to support compliance efforts. Tools powered by artificial intelligence are now capable of monitoring and analyzing vast arrays of transactions to identify potential non-compliance before they become systemic issues.
Regulatory Technology Advancements
Technological advancements have revolutionized compliance practices. Regulatory technology, or RegTech, has been crucial in transforming reactive compliance measures into proactive risk management strategies.
Companies use RegTech to automate compliance processes, thereby reducing human error and increasing efficiency. Automation tools can swiftly adjust to new regulations, ensuring that compliance is continuous and integrated with everyday business processes.
In a study on compliance risk by Accenture, an overwhelming 93% of participants concurred that the integration of artificial intelligence and cloud-based compliance technologies enhances efficiency and effectiveness by automating tasks traditionally done by hand and reducing the likelihood of mistakes made by humans
Implementing a Proactive Compliance Framework
Building a Culture of Compliance
Developing a resilient compliance framework begins with fostering a culture of compliance throughout the organization.
This means compliance is not only a concern for the legal department but is ingrained in the everyday actions of all employees. Training programs tailored to various departments ensure that each employee understands their role in maintaining compliance.
Continuous Improvement and Monitoring
A static compliance program is a relic of the past. Continuous improvement through regular reviews and updates is crucial as it helps businesses stay aligned with both current and emerging laws and regulations.
For instance, GDPR compliance has necessitated ongoing revisions to data protection strategies for many businesses operating in Europe.
Engaging Compliance as a Business Partner
To truly benefit from compliance, companies must see it not as a cost center but as a vital part of their strategic planning.
This shift in perception encourages leadership to involve compliance decisions in the foundational business strategy process, enhancing overall governance and strategic alignment.
The Impact of Non-Compliance
Ignoring compliance can be costly. For example, financial institutions that failed to maintain adequate anti-money laundering controls have faced penalties running into billions of dollars. Consider that organizations spend an average of $5.47 million on compliance versus an average of $14.82 million for non-compliance, according to a white paper published by GlobalScape.
These incidents not only affect the financial health of a company but can also damage its reputation irreparably.
Compliance as the Backbone of Resilient Businesses
Because companies must navigate myriad regulatory waters, compliance is undoubtedly a strategic asset. It is an essential pillar of risk management, critical to sustaining business growth and resilience.
By investing in sophisticated compliance strategies, businesses can protect themselves from unexpected risks and position themselves as leaders in their respective markets.
Thus, a well-oiled compliance framework is not just about following rules. It’s also about building a foundation that allows a business to grow securely and sustainably. Through detailed risk management and strategic compliance, businesses not only safeguard their operations but also secure a competitive edge in the marketplace.
