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.
“The cost of non-compliance is great. If you think compliance is expensive, try non-compliance.”
What is the responsibility of compliance management?
The responsibilities of compliance management are multifaceted and essential for meeting regulatory standards as well as internal policies and procedures. The following are the primary responsibilities of compliance management.
Advising and consultation
The compliance management person or team acts as an advisor to senior management and operational teams on compliance matters. This includes providing guidance on how regulatory changes will affect the organization and recommending adjustments to operations or strategy to maintain compliance.
Developing compliance policies and programs
Developing and updating internal policies and procedures that align with regulatory requirements is a core function of compliance management. Comprehensive policies and programs need to be developed and maintained to address an organization’s specific regulatory requirements and internal standards.
Incident management and response
Identifying compliance issues, investigating breaches, and implementing corrective actions are key functions of compliance management. It also involves developing a response plan for potential compliance violations to mitigate risks and prevent future occurrences.
Monitoring and enforcement
Compliance management includes the regular review and auditing of internal processes to ensure they meet regulatory standards. This includes continuous monitoring of operations and periodic comprehensive audits to identify and address potential compliance issues.
Regulatory awareness
To maintain compliance, it is necessary to stay informed about both existing regulations as well as new regulations and changes to existing ones. This requires monitoring regulatory developments that affect the organization’s industry and adjusting compliance strategies accordingly.
Reporting and documentation
Compliance management is responsible for compiling documentation of compliance activities, audits, training, and incidents, as well as submitting required reports to regulatory bodies in a timely manner to demonstrate the organization’s commitment to compliance and transparency.
Risk assessment
Risk assessments for regulatory compliance require identifying and evaluating the risks of noncompliance, including understanding potential financial penalties, reputational damage, and operational disruptions that could result from noncompliance.
Stakeholder communication
Part of the compliance management responsibility is engaging with external stakeholders, including regulatory bodies and industry groups, to stay informed about compliance expectations and advocate on behalf of the organization’s interests. It also includes communications with internal stakeholders, including employees and management, regarding the organization’s compliance policies and any relevant issues.
Technology utilization
Compliance management often encompasses the implementation and management of compliance-related technology solutions to support compliance efforts. These can include systems for document management, risk assessment, monitoring, and reporting.
Training and education
To effectively enforce regulatory compliance, all employees need training and ongoing education to understand the importance of it and their roles in meeting requirements.
What are the key elements of compliance management?
Communication
Compliance management facilitates open lines of communication between employees, management, and compliance officers, as well as supports communication with external stakeholders, including regulatory bodies, when necessary.
Governance and oversight
For compliance management, governance and oversight involve the commitment of senior management and the board of directors. In addition to creating and maintaining an effective compliance program, they need to be part of oversight to demonstrate the organization’s commitment to compliance at all levels and ensure that necessary resources and support are available for compliance activities.
Independent compliance audit
An independent compliance audit assesses the overall health of the compliance management system by evaluating its efficacy and identifying areas for improvement. This function also provides assurance to management and the board of directors that compliance risks are being managed appropriately.
Issue identification and resolution
A compliance management system provides mechanisms to identify compliance issues promptly and address them effectively. Included in the issue identification and resolution function are establishing channels for reporting violations, conducting investigations, and modifying policies and practices to prevent future issues.
Monitoring, testing, and reporting
Regular monitoring and testing of compliance controls facilitate the ongoing assessment of the compliance management systems. This involves reviewing operations and transactions to identify potential areas of noncompliance and taking corrective action as needed. It also involves providing and supporting mechanisms for reporting compliance issues and concerns.
Policies and procedures
Clearly articulated and detailed policies and procedures are at the core of an effective compliance management program. These should cover the expected standards of conduct and the operational processes required to comply with applicable laws and regulations. Policies and procedures serve as a reference guide for employees, helping them understand their compliance responsibilities and for management to guide oversight of the organization’s compliance efforts.
Risk assessment
Identifying and assessing compliance risks associated with an organization’s operations, market presence, and regulatory environment helps prioritize the deployment of resources for remediation.
Training and education
Effective compliance management systems require ongoing training programs for employees to ensure they are aware of compliance requirements and understand how to perform their duties in accordance with policies and procedures. In addition, having a robust training program in place helps build a culture of compliance throughout the organization.
What is a compliance management system?
A compliance management system is a set of policies, procedures, practices, processes, and controls put in place by an organization to ensure that it complies with regulatory standards, legal requirements, and internal policies. It provides a framework to help organizations manage their compliance obligations systematically to prevent and detect violations of rules, thereby reducing the risk of legal or regulatory penalties, financial loss, and damage to reputation. A well-designed compliance management system integrates with an organization’s operations, providing guidance for decision-making and risk management.
The key components of a compliance management system include:
- Auditing, monitoring, and reporting for regulatory bodies and internal controls
- Continuous improvement based on changes in regulations, operations, and the results of compliance monitoring
- Issue management and corrective action when compliance issues are identified
- Oversight to ensure that the compliance management system functions correctly and requirements are met
- Policies and procedures that detail how an organization intends to conduct its operations to meet compliance requirements, including specific practices, roles, and responsibilities
- Risk assessment to identify, evaluate, and prioritize compliance-related risks
- Training and education for employees to ensure a clear understanding of their compliance responsibilities and the legal and regulatory requirements applicable to their roles
Among the many benefits of a compliance management system are:
- Avoidance of penalties resulting from noncompliance
- Employee engagement
- Enhanced reputation
- Operational consistency and efficiency
- Risk mitigation
- Strategic decision-making
How to manage compliance
Effective compliance management hinges on five key functions:
- Plan
Create and regularly update a strategy for implementing compliance management. - Assess
Identify areas that are not in compliance or at risk of becoming non-compliant. - Prioritize
Organize compliance issues by effort, impact, and severity. - Remediate
Take action to eliminate areas of non-compliance as quickly as possible. - Report
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
What does “monitoring” mean in compliance management?
In the context of compliance management, “monitoring” refers to the ongoing process of assessing and reviewing an organization’s operations, practices, and transactions to ensure they adhere to applicable legal, regulatory, and internal standards. The main objectives of compliance monitoring include the following.
Detecting compliance risks
With ongoing monitoring of operations, organizations can proactively identify potential compliance risks, enabling preemptive intervention and remediation.
Enhancing transparency and accountability
Establishing a compliance monitoring program demonstrates transparency and accountability in an organization’s operations, which helps trust among stakeholders (e.g., employees, customers, and regulatory bodies).
Ensuring operational integrity
Compliance monitoring helps ensure that organizational processes and activities are carried out in accordance with internal policies and external regulatory requirements to maintain the integrity of operations.
Facilitating continuous improvement
Compliance monitoring encourages a culture of continuous improvement by providing information needed to refine compliance strategies and practices.
Improving policies and controls
Through continuous compliance monitoring, organizations can evaluate the effectiveness of their existing compliance policies and procedures and guide adjustments and enhancements to enhance their compliance framework.
Informing decision-making
Compliance monitoring provides information on compliance activities and performance to support strategic decision-making.
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 on 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.
What are the six steps in maintaining compliance?
- Understand the regulatory environment.
Begin compliance management by identifying and understanding all of the applicable legal and regulatory requirements. This includes industry-specific regulations, as well as general business and employment laws. - Get leadership buy-in for compliance management.
Secure the organization’s leadership team’s commitment to ensure a successful compliance program. This means that leaders should actively support compliance efforts and demonstrate their commitment through their actions and communications. - Develop a comprehensive compliance management program.
Create a formal compliance program that clearly details the organization’s compliance policies, procedures, and controls. The program should include documentation of roles and responsibilities, risk management strategies, training programs, monitoring and auditing mechanisms, and procedures for reporting and addressing noncompliance. It should also define expected behaviors, operational standards, and the consequences of noncompliance. Compliance management program documentation should be accessible and understandable to all employees. - Assign responsibility.
Designate a compliance manager or team to oversee the program. This function involves monitoring compliance efforts, reporting to senior management, and staying informed about regulatory changes. Ensure that responsibilities for the compliance management function are clearly defined across the organization. - Educate and train employees.
Conduct regular training sessions for employees to educate them about compliance requirements, organizational policies, and their responsibilities. Offer specialized training for employees in roles with specific regulatory obligations or risks. Compliance management training should be ongoing to keep employees abreast of any changes in policies or regulations. - Monitor and audit compliance.
Regularly perform risk assessments to assess the effectiveness of compliance measures, identify areas for improvement, and detect areas of potential noncompliance and vulnerabilities within operations. Use the findings to prioritize efforts and allocate resources to areas with the highest risk. Internal audits should be complemented with external auditors to provide objective reviews of compliance efforts.
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.
Compliance management FAQ
Below are the answers to some frequently asked questions about compliance management.
What is regulatory compliance?
Regulatory compliance is an organization’s adherence to applicable laws, regulations, guidelines, and specifications established and enforced by governments and regulatory bodies. It provides a framework that helps organizations conduct their activities lawfully and ethically, protecting not just the interests of the organizations but also their customers, employees, and the broader public. Regulatory compliance is meant to ensure that organizations’ practices meet minimum requirements in a number of areas, such as financial integrity, data protection, data privacy, employee safety, environmental protection, and product quality and safety.
Compliance management requires regularly assessing operational processes, maintaining records, conducting audits, and reporting to regulatory bodies as required. Failure to abide by regulatory compliance directives can result in legal penalties, including fines, sanctions, or restrictions on operational activities, as well as reputational damage.
Effective regulatory compliance requires a comprehensive understanding of applicable laws and the implementation of robust governance, risk, and compliance (GRC) strategies. Some organizations have dedicated compliance teams or officers who are responsible for keeping abreast of regulatory changes, advising on compliance matters, and ensuring that policies, procedures, and controls are in place and followed to meet all legal obligations.
What are some key aspects of regulatory compliance?
Key aspects of regulatory compliance include:
- Understanding legal requirements
- Developing and maintaining policies and procedures that ensure compliance
- Training and educating employees on compliance topics relevant to their roles and responsibilities
- Monitoring and auditing on a regular basis
- Documenting evidence that compliance measures are in place and are being followed
- Reporting to regulatory bodies as required, such as information about the organization’s financial health, compliance with specific regulatory requirements, and updates on ongoing compliance efforts
How does training influence compliance management?
Training is an important part of compliance management. It is a preventive tactic and a mechanism for developing compliance awareness and responsibility within an organization. Characteristics of effective compliance management training are:
- Interactive and engaging
- Monitored and measured
- Regular and ongoing
- Relevant and role-specific
Key objectives of compliance management training include the following.
- Demonstrating commitment to compliance: By prioritizing comprehensive and ongoing training programs, an organization demonstrates its commitment to adherence to compliance requirements
- Enhancing legal and regulatory awareness: By ensuring that employees understand how regulatory compliance is related to their roles and the broader industry in which the organization operates
- Improving decision-making: By equipping employees to make informed decisions that take into noncompliance implications and align with both legal requirements and organizational standards
- Increasing transparency: By encouraging open dialogue and reporting related to ethical dilemmas, concerns, or observed compliance violations
- Promoting a compliance culture: By reinforcing the importance of compliance and ethics as core components of the organizational culture
- Reducing risk and mitigating costs: By preventing noncompliance that can result in incidents (e.g., data breaches) and penalties
