Every private-sector organization needs to have clearly defined compliance programs to ensure regulatory compliance. However, compliance issues can arise even with a complete compliance department. That’s why it’s essential to keep an eye out for the latest corporate compliance insights.
Corporate compliance insights tend to help companies in heavily-regulated industries where regulations and laws tend to be very dynamic. The constant expectation of a change leads compliance officers to resort to corporate compliance insights for better enforcement actions.
In this article, we’ll go over what corporate compliance is, why it’s important, and the top corporate compliance insights for 2021.
Let’s get started.
What is Corporate Compliance, and Why is it Necessary?
Corporate compliance is simply the act of complying with a governmental statute, law, rule, or regulation. The corporate world is regulated by the local, state, and the federal government to ensure fair business practice and business ethics.
Corporate compliance includes several things, including both external and internal policies and procedures. Enforcing these policies and following compliance standards helps organizations avoid violating rules, laws, and regulations, so they’re not fined or a victim of a lawsuit.
In any case, corporate compliance isn’t a one-off thing or even a yearly task; it’s an ongoing process. Therefore, companies need to imprint compliance in their corporate culture to ensure all compliance policies are taken into account.
The local, state, and federal government continually updates the laws and regulations. For example, the SEC has made an effort to push FCPA enforcement (Foreign Corrupt Practices Act).
There are various measures of compliance in different cases. For example, the Environmental, Social, and Corporate Governance (ESG) approach is about ensuring you’re adhering to sustainability and societal impact regulations. The GRC (Governance, Risk Management, and Compliance) was developed to help companies achieve their objectives while following the rules and regulations. The GDPR Data Privacy Regulations were developed to help companies and customers maintain a certain level of anonymity.
Similarly, there are organizations such as the Society of Corporate Compliance & Ethics (SCCE) that provide resources to companies to ensure compliance and ethical business practices.
The reason all of this exists and is necessary is because the laws, rules, and regulations are designed to protect businesses and people alike. For companies, a corporate compliance program is essential because it protects your business from potential abuse, discrimination, fraud, wastage, and other disrupting practices.
Most importantly, staying compliant helps avoid fines, lawsuits, and helps your employees and customers feel safe.
3 Top Corporate Compliance Insights for 2021
While compliance is essential for each organization, most of them don’t have a proper system of dealing with it. It’s hard to list down the full article length of laws, rules, and regulations any company has to adhere to. That’s where compliance officers, corporate compliance officers, and general counsels come in.
The United States government is always making minor adjustments to the regulations of all industries according to changing industry dynamics. That’s why you will often find a new case study, whitepapers, podcasts, webcasts, and webinars on regulation adjustments.
That’s especially true for heavily-regulated industries, including the healthcare, insurance, and financial services industry.
In any case, it’s crucial for all organizations to be proactive with corporate compliance. The best way to do so is to research and analyze corporate compliance insights. Getting corporate compliance insights lets you prepare for any potential law or regulation changes.
While corporate compliance insights can be different for each industry, some of them apply to all industries. The following corporate compliance insights for 2021 will apply to most organizations in several industries.
Account for Loss Contingencies
In a recent turn of events, the SEC charged BorgWarner for making material misstatements because they failed to account for certain liabilities.
According to Ron Kral from CCI, ‘Hindsight is 20/20’ is a statement that all companies should understand when it comes to loss contingencies. It’s easy to define contingencies when they’ve settled over time, but companies should have an idea if something is supposed to happen. Otherwise, any loss contingencies are the result of a bad decision made by the company.
The U.S. GAAP recognizes that all contingencies are estimates, at best. That means companies develop contingencies based on assumptions, current knowledge, and future expectations. If loss contingency estimates are performed correctly, a bad management estimate would never trigger any need for a restatement of financial statements. However, if a company fails to develop the right estimates or doesn’t disclose loss contingencies, it can automatically trigger a restatement.
In any case, accounting for loss contingencies is crucial and making precise estimates is critical. It’s imperative that all relevant stakeholders carefully and thoroughly document all material accounting judgments and assumptions.
The truth about a contingency always comes out. At that point, the first questions from regulators and regulatory bodies will be to ask when the company first learned of the contingency and whether they disclosed it in a timely manner.
It’s best to ensure you have the right compliance officers, financial people, and other stakeholders, along with robust controls to mitigate any risks of restatements and contingencies.
More Demand for Compliance and Risk Outsourcing
The coronavirus pandemic (COVID-19) has changed the dynamics of thousands of companies across the United States. However, it has also shown how companies respond to panics and lockdown.
In this case, due to the pandemic, there has been a 25% increase in risk and compliance outsourcing. It’s especially true for heavily-regulated industries like the financial services industry, where risk and compliance teams have turned to trusted third parties.
According to the ACA Compliance Group, the reason for this hike can’t be reduced to any single factor. However, the primary reason is that most companies have asked their risk and compliance leaders to do more with less. In other words, they’re reducing costs while employing cost-effective methods.
The reason this is a significant corporate compliance insight is that the increase in compliance outsourcing isn’t limited to the pandemic. Once the pandemic is over and we move on to 2021, the trend of outsourcing will remain. The primary reason is that companies have gotten a significant return on investment at a fraction of the price.
Rather than spending thousands of dollars on in-house compliance officers, risk officers, and counsel, they can outsource it all for a fraction of the cost.
However, companies that deal with private information, state-of-the-art research, or similar situations would still prefer in-house employees. However, most of the other organizations would opt for a more cost-effective and efficient compliance and risk management process.
According to ACA, the dependence on third-parties and technology can lead to up to 60% cost savings for all risk and compliance functions. It will also lead to greater agility and the ability to scale compliance operations. Most importantly, you can develop better resilience to cyber threats, third-party risk, and business disruption.
Cloud Technology Compliance Strategies
Cloud technology has been one of the most disruptive technologies since the internet. It’s already playing a huge role in various industries and will only get more relevant in the future.
However, the importance of cloud technology has been exponentially increasing in the last few years due to the emergence of thousands of startups. Furthermore, the sudden surge in remote work and the need for greater work mobility and agility with fewer costs has led to an even higher demand for cloud technology.
As more companies adopt a more flexible working approach rather than being restricted to the office, the demand for cloud deployments will increase dramatically. As more companies have started to offer cloud services, the overall costs are reduced, too, opening up the option of cloud technology for smaller companies.
Eventually, many companies that haven’t gone through the advanced digital transformation will do so very soon. That will lead to new laws, rules, and regulations for cloud technology (on top of the regulations already in place).
It’s best for companies to start developing cloud technology compliance strategies beforehand to account for any upcoming laws, rules, and regulations.
Using Corporate Compliance Insights Effectively
It’s crucial to be proactive with your compliance duties. However, what’s more important is to accurately develop a compliance program that takes potential regulation changes into account.
To do so, you not only require accurate corporate compliance insights, but you also need to analyze them according to your organization.
To ensure you have the right idea, take the corporate compliance insights and use them to adjust your organization’s policies and compliance programs according to your specific industry.