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Compliance: What is It?

Some of the biggest brand-damaging scandals have come about because of a lack of or failure to maintain a proper compliance structure.

Noncompliance can lead to hefty fines, criminal charges against employees and managers, and even prison time. Just ask Volkswagen or Wells Fargo. But establishing a compliance program isn’t just about avoiding trouble.

A well-run compliance program can also protect your business from lawsuits, improve employee productivity and morale, and even increase sales.

This can be a tricky needle to thread at times, as the rules and laws can be complex and ever-changing. What was legal one day may not be legal the next, as regulations are updated or new ones are put in place.

Luckily, we’re here to help! In this article, we will explore:

Ready? Let’s jump in!

What is compliance?

First, we should start with a concrete compliance definition. In short, compliance is the adherence to a set of rules or laws. These can be put in place by the government, industry regulators, or the organization itself. Typically, compliance is aimed at ensuring that businesses operate in a safe, legal and ethical manner.

It is made up of these key characteristics:

  • Establishment of standards or expectations
  • Communication and training of those standards
  • Enforcement of the standards
  • Monitoring and review of performance against the standards
  • Continuous improvement of compliance program elements based on results achieved

It’s important to note that there isn’t one specific way to achieve compliance. Every business is different, with its own unique set of regulations it must adhere to. This is why having a compliance program in place is so important — it allows businesses to create a tailored plan for their specific needs.

Now that we have a general understanding of what compliance is, let’s take a look at some of the benefits it can offer businesses.

What are the benefits of compliance?

For businesses big and small, compliance is critical. Here are just a handful of benefits that you can expect from a successful compliance program.

Protection from lawsuits

A lawsuit can effectively destroy all that you have built, depending on the scale or importance of the complaint. Compliance can help reduce the chances that your company will be sued in the first place by putting systems and processes in place to prevent illegal or unethical behavior.

For instance, Wells Fargo’s massive fake account scandal is a perfect example of how not having a proper compliance program in place can lead to disaster. Between 2011 and 2016, employees opened over 2 million unauthorized bank accounts and credit cards in an attempt to meet aggressive sales goals.

The company was eventually fined $3 billion by the U.S. Justice Department. If they had a robust compliance program in place, it may have never happened.

woman reading a paper

Improved employee productivity

When employees know what is expected of them and understand the consequences of not complying, they are typically more productive. A good compliance program will help to improve employee productivity by setting out clear standards and expectations.

Improved employee morale

A good compliance program also helps to improve employee wellbeing. Employees who feel like they are working in an ethical and legal environment are more likely to be happy and productive.

One study from The Engagement Institute found that disengaged employees cost U.S. companies up to $550 billion every year. A strong, easily communicable compliance program can achieve improved buy-in and add to the company culture.

Increased sales

Finally, compliance can also lead to increased sales — the thing that every operator is focused on. When customers know that a business operates ethically and within the law, they are more likely to do business with them.

As you can see, there are many benefits of having a robust compliance program in place. It can help protect your business from lawsuits, improve employee productivity and morale, and even increase sales.

Now that we’ve covered the basics, let’s take a look at some of the different compliance structures that are available to businesses.

Differences between HR, PCI, and GDPR compliance

Three terms that are thrown out when discussing compliance are HR, PCI, and GDPR. To understand each one, let’s dig into what they stand for, what they regulate, and how they differ.

HR Compliance

Human resources leadership includes adhering to laws and regulations related to the hiring and managing of employees. This includes things like ensuring you are properly advertising open positions, conducting criminal background checks, and maintaining accurate records of employee hours and wages.

In 2020, the U.S. had a record 1,548 class action rulings for workplace-related litigation, a result of poor labor law compliance. The old saying “ask forgiveness, not permission” is certainly not applicable here, as failing to install proper HR compliance can result in crippling fines or payments.

PCI Compliance

Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.

The PCI Council is made up of the major credit card brands, including Visa, Mastercard, American Express, and Discover. The Council sets the standard for PCI compliance and provides resources for businesses to become compliant.

There are 12 basic requirements for PCI compliance, which include:

  • Install and maintain a firewall configuration to protect cardholder data
  • Do not use vendor-supplied defaults for system passwords and other security parameters
  • Protect stored cardholder data
  • Encrypt transmission of cardholder data across open, public networks
  • Use and regularly update anti-virus software
  • Develop and maintain secure systems and applications
  • Restrict access to cardholder data by business need-to-know
  • Assign a unique ID to each person with significant responsibility for PCI DSS compliance
  • Track and monitor all access to network resources and cardholder data
  • Regularly test security systems and processes
  • Maintain a policy that addresses information security
  • Keep a written record of security incidents

PCI compliance is mandatory for any business that accepts, processes, or stores credit card information. Failing to become PCI compliant can result in hefty fines from credit card brands.

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GDPR Compliance

In the EU, General Data Protection Regulation (GDPR) is enforced to protect the privacy of digital data. It regulates how personal data can be collected, processed, and stored by organizations operating in the EU.

Organizations that process or store the personal data of individuals who are citizens of an EU member state must comply with GDPR. This includes companies located outside of the EU if they offer goods or services to, or monitor the behavior of, individuals in the EU.

For example, if you are a business owner in the US and you have an online store that sells products to people in the EU, you must comply with GDPR.

The agency offers a checklist, which includes things like:

  • Identifying the personal data you hold.
  • Designating a Data Protection Officer (DPO).
  • Implementing data protection by design and default.
  • Creating transparent privacy notices.
  • Obtaining consent from individuals before collecting or processing their data.
  • Giving individuals the right to access their data, change their minds about consent, and have it erased.
  • Reporting data breaches within 72 hours.

This is not an exhaustive list, however, and businesses should consult with a legal professional to ensure they are compliant.

How can businesses ensure they are compliant?

There are various ways that a business can become compliant. The most important thing to remember is that there is not a one-size-fits-all solution, and several different programs may need to be combined to achieve the effect.

Still, there are some key ways to increase compliance in the workplace:

Compliance Officer

The first is by appointing a Compliance Officer. This is a senior executive who is responsible for developing, implementing, and monitoring the company’s compliance program. They work with other departments within the company to ensure that everyone is aware of and following the relevant laws and regulations.

Compliance Committee

Another option is to create a Compliance Committee. This is a team of employees who are tasked with overseeing the company’s compliance efforts. The committee meets regularly to discuss any issues or concerns and makes recommendations to management on how to improve compliance.

Corporate Ethics Program

A third option is to establish a Corporate Ethics Program. This is a set of guidelines that outlines the company’s ethical values and how employees should behave when conducting business. The program should be communicated to all employees, and enforced through regular training and audits.

Compliance Policies and Procedures

In any of the programs above, certain materials must be produced. These are written documents that outline the specific laws and regulations that the company must comply with, as well as how they will go about doing so. The policies and procedures should be reviewed regularly to ensure that they are up-to-date with any changes in the law.

man stressed while looking at documents

Common mistakes and how to avoid them

In a topic as complex as compliance, it is easy to be overwhelmed by the sheer amount of regulations that a company must obey. At times, that can lead to compliance failures. To help you avoid some of the most common mistakes, we’ve put together a few tips:

Don’t try to do it all yourself

It can be tempting to try and handle compliance internally, especially if your company is small.

However, this is often not the best option. Compliance is an ever-changing field, so it is important to have experts on staff who can keep up with the latest changes. Outsourcing also helps to ensure that your company will comply with regulations no matter where in the world it does business.

Establish a culture of compliance

A good compliance program starts with the company’s culture. Employees must understand the importance of following the rules and be held accountable when they don’t. Compliance training is a key part of this, but it is also important to have clear policies and procedures in place that employees can refer to.

Stay up-to-date on regulations

As we mentioned before, compliance is a complex field and it can be tough to keep up with all the changes. However, you must do your best to stay informed about any new regulations that may impact your business.

Subscribe to newsletters and alerts from regulatory organizations, and make sure you have someone on staff who is responsible for monitoring compliance changes.

Use technology to your advantage

Technology can be a great help when it comes to compliance. Several software programs can automate tasks such as tracking employee communications or managing vendor contracts.

Additionally, there are now several “compliance-as-a-service” providers who offer comprehensive solutions that help businesses stay compliant with all the relevant regulations.

Don’t ignore red flags

If something seems too good to be true, it probably is. This applies to compliance as well. If you see or hear something that makes you suspicious, don’t ignore it. Instead, report it to your compliance team and let them investigate.

For example,

  • If you receive an email from your boss asking you to do something that seems illegal or unethical, report it.
  • If you see a co-worker breaking the rules, report it.
  • If you are contacted by the authorities about an issue with your business, cooperate fully and don’t try to cover it up.

Test your compliance program

Finally, it is important to test your compliance program regularly. This can be done in many ways, such as conducting mock audits or using software that simulates an attack on your systems.

By doing this, you can identify any weaknesses in your system and fix them before they become a real problem.

Final thoughts

You may have come into this article without even knowing what compliance means. Now, after learning about the different structures and how they can protect your business, you may have a newfound appreciation for this critical business function.

Make sure to follow the tips above, while avoiding common mistakes and you’ll be on your way to compliance success!