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The big company collapses are a stark reminder of what happens when companies don’t follow ethical standards and regulations.
Take Enron, for example. Once the biggest energy company in the world, it collapsed in December 2001 due to accounting fraud and regulatory violations and thousands of employees lost their jobs and pensions.
WorldCom collapsed in July 2002 when it inflated its assets by $11 billion and that sparked big changes in corporate governance and accounting practices.
Then there’s Theranos which misled investors and patients about its miracle technology and ultimately got dissolved and its founder Elizabeth Holmes charged with fraud.
Wirecard’s financial scandal in June 2020 where €1.9 billion went missing shook the fintech industry and FTX’s misuse of customer funds in November 2022 raised big questions about regulatory oversight in the cryptocurrency space.
And more recently, Silicon Valley Bank got grilled over its risk management and compliance practices and ended up with a bank run and big disruption in the tech industry.
This is what non-compliance leads to. The bigger the company, the harder it gets to maintain compliance. In this article we'll highlight what corporate compliance is, how to take care of it, and how business rules engines can help you achieve it.
What is corporate compliance?
Corporate compliance means your business is following federal and state laws, industry standards, and company policies. It involves setting up systems and processes to prevent unlawful or unethical behavior and promote ethical practices and operational integrity. Compliance programs are not optional; they are a structured approach to managing risk, avoiding penalties, and trust with stakeholders.
Corporate compliance covers a lot of areas, including regulatory compliance, data protection, anti-corruption laws like the Foreign Corrupt Practices Act, and following both internal policies and external regulations. It ensures your organization operates within legal boundaries and fosters a culture of accountability and transparency.
Why is corporate compliance important?
Corporate compliance protects your business from penalties, reputation damage and operational disruption. Businesses may encounter up to 10 key compliance considerations when operating internationally. These include international tax compliance, immigration laws, employment laws, product standards, and global trade compliance regulations.
Without a compliance program, your company risks fines, lawsuits, and even criminal charges, which can cripple operations and erode stakeholder trust. Being compliant equips your organization to handle compliance enterprise-wide so operations can run smoothly and be long-term sustainable.
Apart from avoiding penalties, compliance efforts enhance ethical behavior and align your business with federal and state regulations. This alignment builds trust with customers, investors, and employees, which is key to growth.
A strong compliance program prevents corporate compliance violations like fraud, data breaches, and unethical practices, which can be devastating.
What makes a successful corporate compliance program?
A good corporate compliance program is built on clear policies, comprehensive employee training, consistent monitoring, and strong leadership oversight. These elements ensure your organization follows compliance policies and prevents common corporate compliance violations.
How do policies and procedures support compliance?
Policies and procedures define compliance requirements, outline prohibited conduct, and establish guidelines for ethical practices. They serve as a guide for employees and third-party business partners, so everyone knows what to do.
For example, a well-drafted code of conduct can guide employees in making ethical decisions and reporting misconduct.
Why is training important in compliance programs?
Training is the backbone of any compliance program. Do training specific to compliance areas like data protection or anti-corruption laws so employees know their roles.
Employee training improves communication, encourages ethical behavior, and reduces the risk of unlawful or unethical conduct. Use training management tools to track progress and ensure all employees are up-to-date with compliance policies.
How do monitoring and enforcement support compliance?
Consistent monitoring and enforcement of compliance policies is key to identifying and addressing risks. Use tools to track compliance policies and do regular assessments to ensure compliance.
Enforcement helps maintain accountability and reduces the chance of misconduct or disciplinary action. A formal assessment process can also highlight areas for improvement, so your compliance program can evolve with changing regulations.
What are common corporate compliance violations and how to prevent them?
Common corporate compliance violations include data breaches, fraud and inadequate training. These issues often arise from unclear policies, insufficient monitoring or not adapting to regulatory changes.
Data breaches are among the most common compliance violations. Approximately 19% of organizations reported experiencing legal or regulatory actions related to data breaches in the past three years. The average cost of a data breach is around $4.45 million, with non-compliance increasing this cost by an additional $220,000 per incident.
The financial services sector faces the highest compliance costs due to stringent regulations. Companies in this sector can incur compliance costs averaging $30.9 million. Regulatory fines for violations can reach significant amounts, such as JPMorgan's $200 million fine for recordkeeping violations.
Under the General Data Protection Regulation (GDPR), fines for non-compliance can start at €20 million or 4% of annual global turnover, whichever is higher. The average cost of non-compliance with GDPR regulations has been estimated at around $14 million, reflecting the severe financial repercussions of failing to adhere to data protection laws.
The GDPR Enforcement Tracker has documented over 1,600 individual breaches since the regulation's implementation in May 2018. This number likely underrepresents the total violations, as not all fines are made public. A survey indicated that less than 10% of companies reported being fully compliant with GDPR regulations, reflecting widespread issues in achieving full compliance.
Legal or regulatory actions against organizations occur frequently, with 19% of risk and compliance professionals reporting such actions in their organizations over the past three years.
Preventing corporate compliance violations requires a proactive approach that combines regular assessments, automation and robust training programs.
How can businesses prevent compliance violations?
To mitigate risk do regular assessments of your compliance program to identify vulnerabilities. Automate compliance processes using tools like business rules engines, which ensures accuracy and reduce human error. Have a strong code of conduct and encourage employee input to foster a culture of accountability.
Also ensure third party business partners meet your compliance standards to avoid external risks.
What role does technology play in preventing violations?
Business Rules Engines help enforce compliance by applying predefined rules consistently across operations. These tools reduce human error, provide structured workflows, and ensure organizations follow established compliance frameworks. For example, in the insurance and finance industries, BREs streamline claims processing by ensuring that predefined rules—such as eligibility criteria and policy limits—are consistently applied.
How business rules engines help compliance programs
Business rules engines (BREs) automate compliance processes, so rules are applied consistently across all operations. They are particularly useful in industries like insurance and finance where regulatory requirements are complex and changing.
BREs provide a structured way to define and enforce compliance rules across business operations. By ensuring that predefined rules are consistently applied, they help organizations maintain compliance and minimize human error. While they do not independently track regulatory changes, business users can quickly update rules to reflect new requirements, making compliance management more agile and adaptable.
Measuring compliance programs
To ensure your compliance program is working you need to measure its performance regularly. This involves tracking specific metrics and doing formal assessments to identify areas for improvement.
Metrics
Measure these to gauge program effectiveness:
- Policy adherence rates: How often employees and third-party business partners follow compliance policies.
- Incident resolution times: How quickly compliance issues are identified and resolved.
- Training completion rates: How often employees complete required training programs on time.
- Audit success rates: How well your organization performs during internal and external audits.
Assessments
Do regular risk assessments to identify vulnerabilities in your compliance program. Use surveys to gather employee feedback on their understanding of compliance policies and their perception of the program. Review incident reports to identify recurring issues and address them proactively.
Risk management and mitigation
Risk management is key to compliance in insurance and finance. Start by doing a full risk assessment to see where your compliance program is most at risk. Focus on high risk areas, complex regulations and third party relationships.
Risk mitigation
Mitigate these risks:
- Regular audits: Review your compliance program to ensure it meets current regulatory requirements.
- Employee training: Provide ongoing training to employees on compliance requirements and best practices.
- Automation: Use BREs to automate compliance processes and reduce human error and ensure rules are applied consistently.
BREs play a crucial role in risk management by ensuring that business policies and regulatory requirements are applied consistently. They can be configured to flag potential compliance risks based on predefined criteria, helping businesses respond faster to regulatory requirements. For more advanced risk analysis, they can be integrated with specialized scoring algorithms and risk management tools to provide deeper insights.
Long term compliance
Long term compliance requires a proactive approach. That means continuous monitoring of regulatory changes, updating your compliance framework and integrating compliance into your overall business strategy.
Continuous updates
Stay informed of regulatory changes and update your compliance program accordingly. Use BREs to deploy updates quickly and efficiently so your organization remains compliant with changing requirements.
Cultural integration
Embed compliance into your culture. Encourage ethical behaviour at all levels and open communication about compliance issues. Recognize employees who demonstrate compliance and address violations promptly to maintain trust and accountability.
Technology adoption
BREs enhance compliance processes by automating the execution of predefined rules and providing structured reports for audits. They ensure that every decision aligns with the latest business policies, and when regulations change, organizations can quickly update the rules to maintain compliance. By streamlining rule-based decision-making, BREs reduce manual effort and create a more consistent, transparent compliance framework.
How to review and improve corporate compliance programs today
Evaluating corporate compliance programs ensures they are effective in preventing violations and ethical behavior. Start by doing a full review of your company’s compliance efforts enterprise wide. This includes reviewing policies, procedures and training programs to see where the gaps and areas for improvement are.
Steps to review compliance programs
- Assess senior leadership’s behaviour: Ensure leaders enforce the rules consistently and set an example of ethical behavior. Their involvement is key to a successful compliance program.
- Review compliance officers’ roles: Check that compliance professionals have authority and resources to manage compliance effectively.
- Analyze training programs: Do online training and coinciding training programs to ensure employees understand compliance policies and their responsibilities.
- Examine reporting mechanisms: Review how the company handles misconduct including reporting misconduct and applying disciplinary measures.
- Interest record keeping: Document compliance activities including training, audits and policy updates.
Building compliance programs
- Procedures: Define the steps to manage compliance and address violations.
- Communication: A good program communicates across departments so everyone knows what the compliance expectations are.
- Monitor and update: Regularly update the program to reflect regulatory and business changes.
This way you can manage compliance and culture of accountability and ethics.