What Is Compliance: What Every Business Should Know

A brief look at the most commonly used compliance standards around the globe

Compliance is a core company attribute, regardless of the size of the venture or sector. This is an area that business owners cannot ignore and must tackle persistently. However, many business owners are either unaware of what compliance is or are unsure about its impact on their business’s health. If you are also one of them, don’t worry; we’ve got you covered!

In this blog, we’ll talk about compliance and why it is gaining the attention of businesses.

 

What is Compliance?

Generally, compliance means adhering to a specific set of rules and regulations. In order to make your business function legally, you need to abide by a specified set of industry standards, rules, regulations, and ethical conduct that apply to your business. These laws may include some country-specific laws, regulations from regulatory authorities, or the internal directives of the company. For businesses dealing with cloud environments, cloud security and compliance is crucial to ensure data protection, risk management, and regulatory adherence. These standards were established to guarantee data privacy, security, financial reporting, and environmental sustainability, which are different characteristics of business operations.

Importance of Compliance

Complying with laws and regulations helps enterprises meet legal requirements and avoid penalties.

• Compliance develops trust and brand loyalty.

• Proper compliance programs diminish the risks and enrich organizational resilience.

• Ethical compliance builds trust, transparency, and accountability inside the organization.

• Compliance is a differentiator that builds trust, an advantage in competition.

• Following accounting standards and regulations ensures financial integrity.

• Compliance is very important for managing laws and for sustainable growth.

• Complying with regulations is the hallmark of an ethical and responsible culture.

• Compliance is essential for organizations to match any changing dynamics of regulatory requirements.

• Complying with regulations results in attaining a good reputation in the marketplace.

Kinds of Compliance

There are two main types of compliance within organizations that play a crucial role in maintaining ethical standards and operational integrity.

External Compliance

External compliance is obeying the laws, orders, and rules external bodies impose on businesses in a specific industry. These bodies include the government, regulatory agencies, and business associations. Examples of external compliance standards include government regulations (e.g., GDPR and HIPAA), industry standards (PCI DSS and ISO 9001), and contractual agreements between clients and vendors.

Internal Compliance

Internal compliance compiles internal policies and procedures that a company applies within itself. The purpose of this kind of compliance is to conform with the company’s standards, guidelines, and regulations. Also, they focus on being the building blocks for ethical behavior, operational efficiency, and risk management within the organization.

We now have a general idea of what kinds of compliance exist and how important they are for businesses. We will now look at different standards of compliance around the globe.

Compliance Standards Around the Globe

So many compliance standards and processes are implemented worldwide to ensure that all businesses comply with ethical, secure, and responsible behavior. Here are some of the different standards of compliance commonly observed around the globe:

Global Compliance Standards

If your organization provides goods or services to European citizens or processes their data, you must comply with GDPR. Since May 25, 2018, the GDPR has been enforced on all businesses that handle personal data in the EU, regardless of the location. Lawfulness, fairness, transparency, purpose limitation, data minimization, accuracy, storage limitation, integrity, and confidentiality all define the main concepts. At the same time, the principle of accountability stands as an umbrella for implementing these concepts. GDPR entails obligations like recognition of an individual’s consent as a legal ground for processing personal data, empowering data subjects, reporting data breaches within 72 hours, DPIAs, giving powers to DPOs, and establishing the same protection level for international data transfers.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA covers healthcare providers, health plans, and healthcare clearinghouses and can therefore be said to address the use, disclosure, and protection of Protected Health Information(PHI). The HIPAA ensures different rules, such as the privacy rule, security rule, breach notification rule, and Omnibus rule. These rules together build the foundation for security practices, such as confidentiality, integrity, and the availability of PHI.

HIPAA, the Health Insurance Portability and Accountability Act, is a US federal law proposed in 1996. The purpose of HIPAA is to protect the privacy and security of PHI, which is held by covered entities and their business associates. HIPAA ensures the privacy rights of patients and protects confidential health information. This creates an atmosphere of security and trust among healthcare providers and the public. Not following HIPAA can result in penalties, corrective steps, and reputational damage.

Payment Card Industry Data Security Standard (PCI DSS)

PCI DSS, or the Payment Card Industry Data Security Standard, is a group of security standards that, purposefully, are established to protect the data of payment cards during the process of transactions. It applies to organizations that process cardholder data, and it consists of the specified controls on networks, data encryption, access controls, and compliance monitoring.

Compliance involves audits and vulnerability scans to assess adherence and impose fines or restrictions for non-compliance. PCI DSS forms the last line of defense against data breaches, fraud, and identity theft. Hence, it is a crucial commodity in preserving electronic payment systems’ integrity and public trust.

International Organization for Standardization (ISO 27001)

ISO 27001 is developed by the International Organization for Standardization (ISO). It is an internationally recognized standard for information security (ISMS) management systems. It is a methodical process that manages sensitive data and ensures information assets’ confidentiality, integrity, and continuity. ISO 27001 demands that organizations mitigate risks, provision security measures, adjust compliance, and regularly update their ISMS. Compliance with ISO 27001 proves a strong intent to follow information security best practices. This assists in building trust and credibility between clients and partners.

California Consumer Privacy Act (CCPA)

The CCPA is a civilian privacy law in California, USA. This law provides Californians with certain rights over their personal information entities. CCPA refers to the companies that process, collect, or sell customer data on Californian residents. Also, if the company meets certain revenue or data processing thresholds, CCPA involves giving consumers the following rights:

• The right to know what kind of personal information is being collected.
• The right to opt out of the sale of personal information.
• The right to demand the deletion of their personal information.

An organization not complying with CCPA may be subject to penalties, fines, and private lawsuits by individuals.

International Traffic in Arms Regulations (ITAR)

International Traffic in Arms Regulations (ITAR) is a set of U.S. government rules that apply to the export and import of defense articles. The U.S. Department of State is administering the ITAR. This department intends to safeguard security interests by managing the exchanges of defense-related articles, services, and technical data. Companies involved in defense-related industries are obliged to observe ITAR regulations, which include getting export licenses, creating security measures, and keeping records. Non-compliance can lead to penalties of a very serious nature. Apart from that, ITAR is a key element in technology protection and upholding the security of the whole world.

These are some of the diverse compliance standards that are observed around the globe. International businesses need to comply with the complex landscape of laws and regulations. But which entity handles compliance in an organization? Let’s discover.

Real-World Examples of Compliance in Action

Understanding how compliance applies to different sectors demonstrates its significance and how it impacts businesses. Below are examples of compliance in various industries, showing both the importance of adhering to regulations and the consequences of non-compliance.

1. GDPR Compliance in Data Privacy

Under the General Data Protection Regulation (GDPR), businesses must protect the personal data of European Union (EU) citizens. In 2020, Google was fined €50 million for GDPR violations due to lack of transparency and inadequate consent practices for ad personalization . This case demonstrates the significant financial penalties and reputational damage businesses can face when they fail to comply with data privacy laws. To avoid such issues, businesses can implement single sign-on to streamline and secure user access, reducing the risk of non-compliance with GDPR and other data protection regulations.

 2. HIPAA Compliance in Healthcare

Healthcare providers are required to comply with the Health Insurance Portability and Accountability Act (HIPAA) to safeguard patient health information. In 2018, Anthem Inc. agreed to pay a $16 million settlement after a massive data breach exposed the protected health information of nearly 79 million people. This is the largest HIPAA settlement to date and underscores the importance of strict security measures for protecting sensitive patient data.

3. PCI DSS Compliance for Online Payments

The Payment Card Industry Data Security Standard (PCI DSS) is crucial for organizations processing credit card transactions. In 2013, Target suffered a data breach that compromised 40 million credit and debit card accounts due to non-compliance with PCI DSS . The breach cost Target over $200 million in settlements and legal fees, highlighting the financial and reputational risks of not securing customer payment data.

4.  SOX Compliance in Financial Reporting

The Sarbanes-Oxley Act (SOX) enforces transparency and accountability in financial reporting. The 2001 Enron scandal, where the company engaged in accounting fraud, ultimately led to the company’s bankruptcy and the creation of SOX .This act ensures that public companies provide accurate financial statements, reducing the risk of corporate fraud and increasing investor confidence.

5.ISO 27001 Compliance in Information Security

ISO 27001 is an international standard for managing information security risks. Organizations like Microsoft have achieved ISO 27001 certification to ensure that they manage sensitive information systematically and securely . Compliance with this standard helps organizations build trust with clients and partners by demonstrating their commitment to following information security best practices.

Steps to Take to Ensure Compliance

Achieving and maintaining compliance requires a systematic approach, integrating various practices into your organization’s daily operations. Below are actionable steps to help ensure compliance and mitigate risks.

1.  Understand Relevant Regulations

The first step in ensuring compliance is understanding the specific regulations that apply to your industry. These may include data protection laws like GDPR, healthcare regulations such as HIPAA, or financial regulations like SOX. Staying updated on regulatory changes is crucial for ongoing compliance.

2.Conduct Regular Risk Assessments

Perform regular risk assessments to identify areas of your business that may be vulnerable to non-compliance. This includes reviewing data management practices, internal processes, and supplier agreements. Use these assessments to prioritize actions that reduce risk.

3. Develop and Implement Policies

Establish clear internal policies that align with relevant regulations. These should cover data protection, employee conduct, and financial reporting standards. Make sure policies are accessible and communicated clearly to all employees.

4.Appoint a Compliance Officer

Having a designated compliance officer or team is essential for larger organizations. This person or group is responsible for overseeing the company’s compliance efforts, ensuring policies are followed, and serving as a liaison between your organization and regulatory bodies.

5. Conduct Internal Audits

Regular internal audits help detect any gaps in compliance. These audits should focus on high-risk areas, such as data handling or financial reporting, to ensure that processes meet the required standards.

6.Use Compliance Software Tools

Leverage compliance management software to track regulations, manage documents, and maintain records of compliance activities. These tools offer the feature of automation for much of the compliance process, making it easier to stay on top of changes and updates

Who is Responsible for Compliance in the Company?

The responsibility of complying with different standards and regulations does not lie on any individual within an organization. It majorly depends on the size and structure of the organization. However, generally, it is the responsibility of a compliance officer, the company’s senior executive. Organizations have compliance officers to ensure that their company and each individual comply with industry standards, laws, and ethical values.

Other than that, the compliance officer is tasked with the development, implementation, and monitoring of the company’s compliance program. He makes sure that all verified rules, regulations, and internal policies are being adhered to. The compliance officer is the point of contact for compliance-related work. Hence, he or she may need to interact with regulatory authorities if required.

Final Thoughts

Corporate compliance practices are important in navigating a company’s regulatory operation. Organizations can strategize their compliance activities by setting particular objectives, using available tools, conducting audits, and offering different pieces of training. Through this proactive approach, we can not only mitigate risks but we can also create a culture of integrity and accountability that keeps an organization credible in the long run.

Are you struggling to keep up with constantly changing compliance requirements? Are you looking for ways to maintain your business’s compliance without draining your time and resources? Let us handle your compliance management with our innovative solution. Get started with ScaleOps today!