Compliance management is an umbrella term for all tools, systems, people, and processes used to abide by rules and governance policies. Effective compliance management integrates this function across all parts of an organization. In addition to ensuring that rules are followed, compliance management often detects risks or potential issues, allowing proactive mitigation measures to be taken.
Compliance management relies on audits (i.e., internal and third-party), technology, reports and documentation, and security controls that provide guardrails to prevent non-compliance. In addition, compliance management requires internal or external experts to provide guidance on what laws, regulations, and policies apply and how the organization ensures that they are followed.
Compliance management enforces outside regulatory rules and laws set forth by governments and industry groups, as well as internal governance policies and organizations’ bylaws. By ensuring that rules are followed, compliance management saves organizations the expense of fines, difficulties associated with recovering from attacks, and reputational damage that can occur due to non-compliance.
Among the many benefits of strong compliance management is that it:
- Minimizes organizational risk
- Helps employees adhere to laws, regulations, and governance policies
- Reduces the chance of reputational damage
- Saves untold costs associated with non-compliance
“The cost of non-compliance is great. If you think compliance is expensive, try non-compliance.”—Former U.S. Deputy Attorney, General Paul McNulty
How to manage compliance
Effective compliance management hinges on five key functions:
Create and regularly update a strategy for implementing compliance management.
Identify areas that are not in compliance or at risk of becoming non-compliant.
Organize compliance issues by effort, impact, and severity.
Take action to eliminate areas of non-compliance as quickly as possible.
Document what changes were made, the results, and lessons learned.
In addition, it is imperative to follow best practices for compliance management and leverage the proper tools.
Compliance management challenges
While the importance of compliance management is without question, it does have its challenges. Commonly cited difficulties include:
- Rapidly evolving compliance landscapes
- Distributed environments that must be monitored
- The complexity of enforcing compliance management programs consistently across an organization
- Creating benchmark and tracking compliance management data
- Monitoring third and fourth parties and vendors
Best practices for compliance management
Following best practices is integral to developing and maintaining a successful compliance management initiative. These recommendations have been utilized by many organizations of varying sizes in multiple industries. While not all will be applicable to every organization, these best practices provide an overview of what is required to make compliance management effective.
- Align business functions with compliance.
- Take a risk-based approach to compliance management.
- Establish a top-to-down initiative with active leadership participation in the compliance management team.
- Use tools to stay on top of changing laws and regulations.
- Conduct risk assessments on a regular basis.
- Establish and enforce company policies and procedures that ensure compliance and review processes and procedures regularly.
- Share the compliance management plan and provide robust training.
Compliance management tools
Most compliance management tools are part of a system that integrates various components and processes to support stakeholders, including leadership teams, managers, staff, compliance officers and managers, and auditors. A compliance management system also helps streamline key processes, including:
- Addressing results of an audit
- Assessing and responding to violations
- Creating and delivering training
- Ensuring that corrective action is taken if a violation occurs
- Staying up to date on changes to pertinent laws, regulations, and policies
A compliance management system can also be used to:
- Automate compliance-related tasks and workflows
- Facilitate the development of reports for auditors
- Keep policies and procedures aligned with applicable laws and regulatory requirements
- Support risk management programs
- Provide secure, centralized storage for important information and documents
There are several types of compliance management systems, including the following.
- All-purpose compliance management systems provide a suite of tools that any type of company can use in any industry. While these systems can be effective for straightforward requirements, they usually lack the ability to handle risk remediation or support corporate governance.
- Industry-specific compliance management systems are purpose-built to address the unique needs of organizations that operate in tightly regulated industries, such as financial, healthcare, manufacturing, and government agencies.
- GRC (Governance, Risk, and Compliance) systems are designed to support compliance management, risk management and monitoring, and governance programs, as well as offer industry-specific modules.
Features included in robust compliance management systems include:
- Automated scanning to proactively surface issues
- Data dashboards and analysis to inform decision making
- Capabilities to measure non-compliance risk and establish acceptable levels of risk
- Guidance for remediating non-compliance issues
- Reports that detail any compliance violations and the status of remediation
Importance of compliance management
The importance of compliance management varies by organization. It can be a matter of life or death for some organizations, since faults or failures can cause catastrophic outcomes (e.g., healthcare, medical device manufacturing, automotive manufacturing, mining).
In other industries, compliance management is important because it protects consumers (e.g., Fair Credit Reporting Act, Fair Debt Collection Practices Act, Equal Credit Opportunity Act, California Consumer Privacy Act).
Another reason that compliance management is important is that the regulatory agencies have been increasing their penalties for non-compliance. For instance, a violation of the Privacy Rule in the Health Insurance Portability and Accountability Act (HIPAA) carries a criminal penalty of up to $50,000 and up to one-year imprisonment. And failing to comply with the European Union’s General Data Protection Regulation (GDPR) can result in fines ranging from €10 million or 2% of a firm’s annual revenue from the preceding financial year to up to €20 million or 4% of a firm’s annual revenue from the preceding year.
Additionally, some industry-specific regulators can suspend or revoke organizations’ ability to use their products or services if they fail to comply. For example, failure to comply with the Payment Card Industry Data Security Standard (PCI DSS) can result in a suspension of an organization’s ability to accept credit cards.
Continuous compliance management requirements
Compliance management is far from a set it and forget it practice. Laws and regulations are constantly being generated and updated to ensure the best outcomes and defend against malicious actors. Most organizations have a complex mesh of laws, regulations, and policies that require compliance management.
Once compliance management systems and processes are in place, they require continuous maintenance to meet changing requirements and effectively enforce the rules. However, the resources invested in compliance management deliver an undisputed return on investment.
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