The modern business environment has a huge number of regulatory compliance requirements covering everything from personnel, health and safety, environmental effects, finance and tax as well as specific operational compliance relating the core business activities. For companies in any sector, complying with the large volume of regulatory compliance and maintaining and demonstrating compliance over the long term adds significant costs. Reduce focus even for a short while however and the costs of non-compliance can be immense.
In sectors focused on value creation, the question is whether it is possible to take compliance, typically recognised as a major cost centre in the business, and turn it into an additional value driver.
Let’s take a look at where compliance costs typically stem from, and then explore the “five compliance value drivers”. These drivers demonstrate how RegTech can help move compliance from a cost centre to a creator of value.
The compliance cost drivers
Compliance in any industry is an outcome that only comes from having a depth and breadth of organisational involvement. Teams throughout a company, from those in customer-facing roles to those around the boardroom table, each play a part and have a real stake in how well compliance is handled. Why is it so challenging?
First, there is the nature of business operations which have environmental and health and safety aspects that are heavily regulated in almost all jurisdictions.
Secondly, there is the increasingly global nature of modern business, bringing with it the risk and cost of navigating new market entries and needing to quickly get up to speed with local laws and regulations. All of this must be managed while not falling foul of corrupt practices or conflicts of interest.
Thirdly, there are the myriad of contractual obligations with suppliers, customers and partners and internal company processes and procedures to be managed.
Add to that an ever-changing regulatory environment for many industries as governments grapple to address concerns over climate change, privacy and international tax treatment and you have a significant legal and compliance overhead in order to do business.
How do you change the perception of the compliance function from cost centre to value driver?
In most organisations, the value in ensuring compliance and avoiding the negative consequences of compliance breaches are well known. Not only do you avoid fines and penalties and the internal and external costs of dealing with compliance failures, but you also avoid the increased operating costs that can result from delays, such as having business activities and deals put on hold while you deal with regulatory issues.
Perhaps less understood, are the real benefits to be realised from using technology to bring a pro-active compliance management culture to the organization. These are what we call the Compliance Value Drivers.
The 5 Compliance Value Drivers for organisations
Compliance Value Driver #1: Visibility – bringing clarity and awareness of compliance management to the business
Often, as organisations grow and expand, they develop an ad-hoc set of compliance systems and processes siloed in different business units, functional teams and offices. This can result in, at best, costly duplication of effort and wasted resources and, at worst, unidentified compliance risks as there is no clear picture of who is responsible or how effective their systems and processes are.
Implementing a technological solution to provide a single source of compliance information across the organisation brings visibility of compliance requirements to all who need it, provides clear responsibility and accountability and ensures everyone in the business is accessing the most up to date information.
By improving compliance knowledge and understanding across the business, knowledge gaps can be identified for training and operational process gaps can be filled. Identifying these issues early and enabling compliance risks to be addressed proactively means there is less reliance on audit processes to bring issues out of the woodwork.
Compliance Value Driver #2: Efficiency – create more time for value-add activities
Having a single source of real-time information available across the organisation translates into less time spent on communicating information and updating people and systems across your business or gathering and manipulating information from multiple sources to generate reports for management.
It goes without saying that software can also take the pain out of managing the many periodic obligations of businesses, such as annual reporting requirements, which can be ‘set and forget’ with email reminders and notifications to keep you on track.
Where RegTech can really come into its own, though, is in enabling the legal and compliance specialists in the organisation to operationalise compliance requirements in a meaningful way for the business. In doing so, the compliance function can, for example, empower the operational teams carrying out day-to-day activities to manage the many activity or event-driven obligations that may arise in the course of their business operations.
Specialist compliance software solutions can be used to automate activity timelines, task generation, email reminders and report generation, removing the need to manually enter tasks for repeated business activities. This not only saves time but also standardises the process and reduces the chance of input errors (e.g. due dates being miscalculated) or obligations being missed altogether. What’s more, the audit trail is created as you go and your operational teams are freed up to do more valuable things with their time.
Compliance Value Driver #3: Resilience – ensure business continuity and manage key person risk
The major business disruption caused by COVID-19 has highlighted the benefits of cloud-based systems. When employees are forced to work from home, having remote access to business-critical information is hugely important to ensure nothing gets missed. Similarly, having automated compliance systems that can generate notifications and reminders reduces the risk of things being overlooked when the focus may be elsewhere.
The detailed compliance knowledge required from people working in most sectors means that specialisation is a requirement in many industries. But this leaves organisations uniquely susceptible to key person risk. Losing an employee with seemingly irreplaceable knowledge and skills, crucial to a company’s success, can cripple the business, especially when the skill set relates to regulation and compliance.
The consequences of less experienced people attempting to fill empty shoes can result in errors and omissions and can damage the company’s reputation, lose trust with stakeholders and significantly impact on shareholder value.
Regulatory technology should be one of your underpinning strategies to mitigate key person risk by capturing compliance knowledge and operationalising compliance processes such that incoming staff can quickly ascertain status and easily take over those responsibilities.
Compliance Value Driver #4: Forward focused – organising for change
By achieving the efficiency gains made possible by regulatory technology, the compliance function’s time and resources can be re-focused on proactive compliance activities such as tracking and evaluating proposed legislation and policy settings to get ahead of the curve and advise the business on the risks and impacts of changes on the horizon.
Furthermore, having operationalised the organisation’s compliance requirements, you will be well-positioned to quickly adapt to regulatory change as the impacts on business operations can be easily identified, managed and integrated into your business processes.
Compliance Value Driver #5: Reputation – demonstrating your corporate social responsibility
In many situations, a negative compliance record can harm an organisation’s ability to carry out its business and attract customers, partners and investors.
Similarly, the ability to demonstrate a good compliance record and an embedded compliance culture in the organisation increases stakeholder confidence. This drives value which will be reflected in the stock price and engagement with employees, suppliers, customers, communities and regulators, cementing the organisation’s reputation as a caring and trustworthy company.
In summary, harnessing the power of RegTech will not only almost entirely eliminate the collective dread amongst employees that comes with endless compliance questionnaires and audits, but it will elevate visibility, awareness and understanding of compliance across the organisation. It will embed pro-active compliance management processes into the day-to-day business operations.
The shift to utilising powerful data analytics and real-time management information will start to show results as the company can refocus time and resources from manual tasks and duplicated effort. By proactively positioning the company for adaptive compliance management, the compliance team can support the activities that deliver on the strategic vision and drive most value into an organisation. The question for your team is the scale of value that can be created as you move from being a cost centre to being a value driver.