What is Regulatory Compliance? A Comprehensive Guide
Harsh Sahu
CTO
February 2024 | 10 mins
Regulatory compliance is the adherence to laws, regulations, and standards that govern business activities. Achieving regulatory compliance is important for businesses of all sizes, as failure to do so can lead to significant fines, penalties, and reputational damage.
There are many different types of regulatory compliance, including financial compliance, data protection compliance, and industry-specific compliance. The specific regulations that a business needs to comply with will vary depending on its industry and location.
Common examples of regulatory compliance laws and regulations include the Payment Card Industry Data Security Standard (PCI DSS), Health Insurance Portability and Accountability Act (HIPAA), Sarbanes-Oxley Act (SOX), EU's General Data Protection Regulation (GDPR) the California Consumer Privacy Act (CCPA), International Standard for Information Security (ISO) 27001 and 9001, Service Organization Control (SOC) Type 1 & 2, and the National Institute of Standards and Technology (NIST).
Before we deep dive into the various aspects around regulatory compliance, let’s first understand the core of this topic.
Regulatory compliance refers to the adherence to laws, guidelines, and specifications relevant to its business processes.
This could include meeting standards for health and safety, data protection, and financial governance.
It's the organization's responsibility to ensure that they are aware of, and take steps to comply with, these relevant laws and regulations.
Here are few compliance regulation examples:
General Data Protection Regulation is the EU's data privacy law, which describes how organizations or entities (also called data controllers) should collect, process and store personal information. It is one of the stringent regulatory law and major data regulation laws around the world mirrors GDPR.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) are set of rules for anyone who held or transferred protected health information (PHI) in electronic form. Prior to HIPAA, no generally accepted set of security standards or general requirements for protecting health information existed in the health care industry.
PCI-DSS is an actionable framework for developing a robust payment account data security process, including prevention, detection, and appropriate reaction to security incidents. PCI-DSS provides a baseline of technical and operational requirements designed to protect payment account data.
There are many different types of regulatory compliance, including:
There are many reasons why regulatory compliance is important. The following concepts highlight the purpose of regulatory compliance:
All businesses, regardless of size or industry, need to comply with some form of regulation. The specific regulations that a business needs to ensure compliance with will vary depending on its industry and location.
In the United States, for example, businesses must comply with federal regulations as well as state and local regulations. In India, businesses must comply with central government regulations as well as state and local regulations.
The EU's data privacy law, GDPR, mandates that organizations that handle both EU residents' personal data and protected health information or payment card information should comply with GDPR in addition to HIPAA (for health information) or PCI-DSS (for payment card information) to ensure comprehensive data protection and compliance with applicable laws across different jurisdictions.
The gist of who needs to comply with regulatory laws is that organizations which process, store, or transmit personal or sensitive information need to comply with regulatory compliance standards relevant to their industry and jurisdiction.
This includes healthcare providers (HIPAA), payment card processors (PCI-DSS), and any entity under specific regional or sector-based regulations.
Organizations that prioritize regulatory compliance reap a range of advantages that enhance their reputation, foster innovation, and strengthen their overall position in the marketplace.
The benefits of regulatory compliance includes:
Regulatory compliance demonstrates an organization's commitment to ethical and responsible business practices, fostering trust among customers, partners, and stakeholders.
A strong reputation for compliance attracts and retains loyal customers, enhances brand image, and positions the organization as a leader in its industry.
Regulatory compliance provides a framework for organizations to operate within defined boundaries, fostering a culture of risk management and responsible innovation.
By understanding and adhering to regulatory requirements, organizations can channel their creative energy into developing innovative products and services that meet market demands while adhering to ethical and legal standards.
Regulatory compliance often serves as a prerequisite for entering new markets, particularly in highly regulated industries.
Organizations that demonstrate compliance can expand their reach, tap into new customer segments, and gain a competitive edge in global markets.
Customers increasingly value organizations that prioritize data privacy, ethical practices,and responsible data handling.
Regulatory compliance reinforces an organization's commitment to protecting customer data and upholding ethical standards, fostering trust and loyalty among consumers.
Regulatory compliance helps organizations avoid costly legal disputes, fines, and penalties that can arise from non-compliance.
By adhering to regulatory requirements, organizations minimize their legal exposure and protect their financial stability.
Regulatory compliance can streamline operations by establishing clear guidelines and procedures for data management, security, and risk management.
This can lead to improved efficiency, reduced costs,and enhanced decision-making capabilities.
In today's competitive marketplace, regulatory compliance can be a key differentiator, setting organizations apart from those that prioritize short-term gains over long-term compliance.
A strong compliance record can attract investors, partners, and top talent, further strengthening an organization's competitive edge.
Non-compliance with regulations can result in significant financial penalties,reputational damage, and even criminal charges.
By prioritizing compliance, organizations minimize these risks and protect their financial health and reputation.
We have divided the risks into three different categories:
In terms of numbers, data protection supervisory authorities across Europe have issued a total of USD 1.74bn in fines since 28 January 2022.
Level-one Fines (Article 83(4)) – up to €10 million or 2% of the company’s worldwide annual revenue, whichever is higher.
Level-two Fines (Article 83(5)) – up to €20 million or 4% of the company’s worldwide annual revenue, whichever is higher.
Under HIPAA, the severity of the monetary penalties varies depending on the nature of the violation, with a range of $127 to $250,000.
If the business doesn’t meet the PCI DSS requirements, the non compliance fee can vary from $500 to $500,000 as per the severity of the violation.
There are a few key steps that businesses can take to achieve regulatory compliance:
The first step is to identify the regulations that apply to your business.
This can be done by reviewing the websites of relevant government agencies and industry associations.
Once you have identified the relevant regulations, you need to assess your current compliance posture.
This involves reviewing your policies, procedures, and systems to ensure that they are aligned with the applicable regulations.
If you find that there are any gaps in your compliance posture, you need to develop a plan to address them.
This plan should include specific steps and deadlines for achieving compliance.
Once you have developed a compliance plan, you need to implement it. This may involve making changes to your policies, procedures, and systems.
Compliance is an ongoing process. You need to monitor your compliance posture on a regular basis and make adjustments as needed.
Compliance requirements vary significantly across different industries due to the unique nature of their operations, the sensitivity of the data they handle, and the regulatory landscape governing their activities.
Here's a breakdown of compliance differences across key industries:
If an organization deals with multiple sensitive data such as PII, PCI, and PHI, they are required to adhere to different sets of regulatory laws. It becomes even more tough when handling sensitive information in diverse geographies, where local changes and amendments in regulatory laws could lead to change in how entities protect the sensitive information.
To comply with multiple regulatory laws, organizations need a platform like OptIQ which has inbuilt compliance management toolkit. Our platform helps in managing different regulatory laws such as PCI-DSS, HIPAA, GDPR, NIST, HITRUST simultaneously by:
To begin with, 41% of businesses without continuous compliance report slowdowns on the sales cycle as a result.
There are a number of common challenges that businesses face in achieving and maintaining regulatory compliance, including:
#1 Managing the cost of compliance
#2 Lack of awareness of regulations
#3 Fragmentation of regulatory oversight
#4 Keeping up with changing regulations
#5 Complexity of regulatory requirements
#6 Integrating compliance into business operations
#7 Lack of resources to implement and maintain compliance programs
There are a number of ways to overcome regulatory compliance challenges, including:
#1 Investing in compliance software and tools
#2 Implementing a risk-based approach to compliance
#3 Outsourcing compliance tasks to third-party providers
#4 Conducting regular compliance training for employees
#5 Developing a culture of compliance within the organization
There are a number of regulatory compliance practices that businesses can adopt to ensure that they are compliant with all applicable laws and regulations.
An organization that is in regulatory compliance is likely to follow the following best practices:
#1 Conducting regular compliance training for employees
#2 Developing and implementing compliance policies and procedures
#3 Conducting regular risk assessments to identify and mitigate potential compliance risks
#4 Implementing a compliance management system to track and monitor compliance activities
#5 Conducting regular compliance audits to identify and address any gaps in compliance
Regulatory compliance can contribute to the customer experience in a number of ways. It can help to ensure that customers' personal data is protected.
Regulatory compliance mandates can help to ensure that businesses are operating in a fair and ethical manner. Regulatory compliance processes can help to resolve customer complaints quickly and efficiently.
If you want to ensure your customers have continuous faith in your business and trust your credibility to safeguard their essential and sensitive data, contact OptIQ for a smooth compliance certification process in a record time.
Regulatory compliance in healthcare is the adherence to laws, regulations, and standards that govern the delivery of healthcare services. These laws and regulations are designed to protect patients, ensure the quality of care, and prevent fraud and abuse.
A regulatory compliance audit is an independent evaluation of an organization to determine whether it is complying with all applicable laws, regulations, and standards. Regulatory compliance audits can be conducted by internal or external auditors, and they can be focused on a specific area of compliance, such as HIPAA or PCI DSS, or on the overall compliance posture of the organization.
Regulatory compliance in financial institutions is the adherence to laws, regulations, and standards that govern the financial services industry. These laws and regulations are designed to protect consumers and investors, ensure the safety and soundness of financial institutions, and prevent financial crime.
