Regulatory Compliance Risk Management and the Role of Web Data

Regulatory Compliance Risk Management and the Role of Web Data

Regulatory compliance means more than following rules; it’s big business. Regulations can fuel a company’s breakthrough or slow their innovative initiatives. Compliance can impact a company’s financial bottom line, but so can non-compliance.

Regulatory compliance risks are a player in today’s markets. Auditors, due diligence services, and financial consultants need to keep their clients accurately informed at all times to help them manage regulatory risks effectively.

That shouldn’t be an enormous challenge, after all, the relevant information is available on the internet. Here’s the catch: with the excessive amount of web data floating around, organizations are struggling to track down what really matters. On top of that, regulatory demands are growing and becoming increasingly complicated to a point where even professionals are puzzled.

The trick is to provide the right data in the right context at the right time. In this article, we’ll examine what regulatory compliance means, investigate which areas are impacted by regulatory risk and identify regulatory compliance challenges using some examples.

What is regulatory compliance risk management and why does anyone need it?

When addressing regulatory risks, companies need to look at every business area. The need for regulatory compliance reaches into matters that aren’t directly related to their core business.

Think about the underlying objective for a moment. Regulations are necessary for economics and societies to function properly. As trade and commerce become increasingly interlinked globally, the need for commonly applicable guidelines and rules spreads into every area of business. This reaches beyond legal issues and covers the financial, economic, and social liabilities of every company.

Areas in business impacted by regulatory risks:

  • Financial strategy – Achieving and maintaining regulatory compliance requires significant time and effort. It starts with the cost directly involved in auditing and certification, which must be incorporated into the product cost or overall expenses of running a service. Incomplete or inaccurate information regarding regulatory requirements and the incurring cost can significantly increase the financial risk for the investing client. It doesn’t end there. The three following points all have financial implications.
  • Innovation – Strict regulations can hamper innovation. In highly regulated industries, innovators may find themselves bound by unexpected restrictions and often aren’t aware of the challenges involved in meeting regulations. For example, getting approval from the FDA, for a newly developed pharmaceutical, can take months. Even established pharma enterprises need to plan ahead and make sure they have the financial cushion to keep them going long enough.
  • Competitiveness – Regulations alter the balance between supply and demand and therefore impact competitiveness in a market. As regulations increase, competitiveness decreases. This can work in favor of one company and to the disadvantage of another. In some cases, compliance can determine whether a company wins or loses the business or even an entire market. We are currently witnessing a good example with Meta and the EU regulations. Imagine how social media competition will shift if indeed Facebook and Instagram are pulled out from Europe due to privacy protection regulations.
  • Reputation – Getting on the wrong side of regulatory agencies within an industry can severely damage a brand and its reputation. To avoid the scarlet letter of non-compliance, companies should implement and continuously monitor internal compliance controls and ensure nothing falls through the cracks. ESG criteria, for example, or standards such as ISO are seals of quality. Businesses won’t get fined or lose a license, but their reputation can take a strong blow if they fail to live up to the commonly accepted level of quality. Also, and this circles back to the competition, a competitor could significantly raise the standard, forcing the entire industry to catch up.

In short, regulatory risks are business risks, and they need to be managed.

Companies need to consider regulations even though they are not part of a regulated industry. I.e., AML compliance applies not only to fintech companies, and data privacy doesn’t only concern data companies. Companies aren’t always fully of aware of this and that’s why they need proficient consultants who know where to get the required reliable information.

The real challenge many help-seeking companies face is they don’t know which regulations are relevant to their line of business. Others are unaware of changes or variations in a constantly growing framework of regulations expanding in multiple directions.

Regulatory compliance risks and the growing challenges

Let’s try and understand why regulatory compliance risk assessment and management is becoming increasingly challenging and why companies are in dire need of the latest, accurate web data.

We can pinpoint five main reasons:

1. Different regulations in different demographic locations

In the US, regulation occurs at the federal, local, and state levels. This means, depending on the business location of customers, different sets of rules may apply. And what happens when they venture out globally? Simply offering services or products on the internet can cause a significant change of rules. Any company wanting to expand into a new market needs to consider the local regulations.

2. Increasing number of regulations

If you were to read all regulations in all US states, you would need 12 years. This is just to give you a feeling of the number of regulations – and we only included state regulations here. Over the past 25 years, there was almost a 20% increase in regulatory restrictions and today we count over 1 million restrictions in the US only. According to the Policy Circle, the number of regulations on a federal level increased by 700% between 1960 and 2019.

Timeline of agencies and when they were created, according to The Policy Circle
Timeline of agencies and when they were created, according to The Policy Circle

We’ve already seen that in today’s global economy, business is affected by international restrictions. Organizations need to keep up with regulatory changes everywhere in their reachable market.

3. Calculating the cost of regulatory compliance

The costs of regulatory compliance are considerable. It’s difficult to quantify accurate amounts, but estimates of the total accumulated cost of regulations between 2002 and 2017 fall close to $2 trillion annually. During the same time, it’s estimated that compliance costs for manufacturers rose nearly 8% per year.

Regulatory compliance risk management is big business. More and more companies are understanding that not managing it will cost them more.

4. Frequently changing regulations

The most regulated industries aren’t necessarily the ones that come to mind when we think of regulatory compliance risk. In the US, service providers submit to the highest number of regulations. In the manufacturing sector, chemical industries are the leading category.

More regulations mean more complexity. As industries advance, new regulations add to the existing restrictions, cancel, limit, expand or alter them.

Top 10 Most Regulated Industries by Cumulative State Level Industry Restrictions 1 1
Top 10 regulated industries by cumulative state-level industry restrictions, per The Policy Circle

5. Knowing which regulations apply

It all boils down to one thing: Knowing which rules apply to whom and when. Companies often lack the board knowledge and the resources to get to the bottom of this. Even enterprises with legal departments and compliance officers – or maybe especially these clients – depend on information sources that can pinpoint and provide accurate, current data.

Manually searching data banks to locate the latest amendments and determine the validity of a specific decree is like trying to discover if the needle in the haystack is still sharp. It’s a waste of time and effort for the responsible teams. At the end of the day, time and labor translate into money and often this type of research becomes a bottomless pit of expenses.

On top of that, there’s no guarantee that manually managing regulatory compliance risks is reliable. There’s just too much room for human error and data slipping through the grid.
Let’s look at some regulatory compliance examples that touch every business sector to show that regulatory data is relevant not merely for regulated industries.

Regulatory compliance examples

FDA – Food and Drug Administration

One of the most influential regulatory agencies is the Food and Drug Administration, better known as the FDA. The agency addresses anything from chocolate bars to revolutionary cancer treatments, from a dairy farm in a barn to a giant cosmetics plant.

FDA regulations aim to ensure the safety, efficiency, and security of human and veterinary drugs, biological products, and medical devices, including their production, marketing, and distribution. Take a second to contemplate the scope of their influence.

Many companies and businesses are struggling to locate where it affects them and find themselves facing unpleasant surprises. This kind of confusion can be very costly, and avoided by providing current, factual government data.

AML – Anti Money Laundering

One high-risk area for businesses is financial transactions. By nature, wherever there’s money, there’s crime and corruption. That’s where Anti Money Laundering (AML) laws come into play to thwart criminal activities such as tax evasion, corruption of public funds, market manipulation, trading of illegal goods, funding of terrorism, or other crimes.

Spontaneously you’d think of the gambling industry, but AML is relevant wherever people open an account online or money passes from one entity to another. Think of savings accounts, cryptocurrency, and non-profit organizations that receive donations.

In the globally expanding industry, digital currencies are already a common payment method, and banks in the remotest of locations are accessible to anyone. More and more industry sectors are at risk of being exploited by money launderers and organizations need to comply with stricter regulations to verify the identity of customers or the origin of their finances. Regulations, such as CIP, BSA and KYC are only a few of the requirements organizations need to be updated about to help them comply.

ESG – Environmental, Social and Governance

Many directives are mandatory by law, and non-compliant companies aren’t permitted to operate and face lawsuits or considerable fines. Other regulations are voluntary (for now). Take Environmental, Social, and Governance criteria (ESG) as an example.

Many companies benefit from complying because ESG serves as a type of social credit score. Investors concerned with environmental and social issues or sustainability often evaluate companies according to ESG criteria.

GDPR – General Data Protection Regulations

The GDPR shows how local laws can impact every single business anywhere in the world if they are on the WorldWideWeb. Personal privacy is valued highly in Europe, and the European public demands protection of their private data – or at least a choice in the matter. That’s how the General Data Protection Regulations came to be and whether people in China or the US agree with it or not, they need to abide.

Non-compliance can cost a lot more money than making sure a website is GDPR compliant. Not only can collecting unauthorized data lead to significant fines, sites can be inaccessible from certain locations or even taken down.

How can you help your clients manage regulatory risks?

Here’s the simple answer: Provide them with the latest relevant government data. The bigger question is, how do you do that?

Organizations find themselves struggling with the complexity and scope of regulation, stricter enforcement by government and regulatory authorities, and miscalculation of compliance-related costs.
That’s why they come to you for professional help. Experience and expertise aren’t enough anymore to assist in managing regulatory compliance risks. Any strategic decision requires backing up with data and the place to obtain that is on the web.

Some common compliance risks include:

Third-Party Risks

Supply chains are a long, convoluted mesh of entities of all types and sizes. Most organizations link to multiple chains, and each expands the scope of regulatory compliance risks management.

Vetting subcontractors, service providers, suppliers, and vendors includes collecting regulatory compliance-related data. Non-compliance of one chain member results in damage to the associated organizations, affecting reputation and trust. Not to mention the fallout when failure to comply causes financial loss, reduced quality, functionality failures, etc., the entire chain suffers.

TPRM (Third Party Risk Management) includes identifying and mitigating the risks posed by a non-compliant third party. The amount and specificity of web data required for this is enormous.

Business Due Diligence

Trust is good, but carefulness is better. There may be a million reasons why companies need due diligence services to investigate another company’s operations: A merger, an acquisition, or a long-term contract, you name it.

Regulatory compliance risk assessment based on Anti-Money Laundering (AML) and Know Your Customer (KYC) guidelines should be an integral part of the due diligence package. Having the relevant data can impact the financial calculations or operational decisions in this context.

Watchlist screening to keep tabs on PEPs (Politically Exposed Person) or sanctions can help create a more comprehensive picture of potential business partners or employees. Adverse media mentions can point to potential risks and monitoring them can be highly useful.

Investment Intelligence

Venture capitalists depend heavily on data and information provided by various parties. They entrust capable and proficient professionals with the research, counting on their ability to provide the latest and most comprehensive insights.

In addition to financial data, investors are evaluating their potential investments according to ESG criteria, and that means locating the relevant compliance data that lets them score the candidate.

The more accurate and comprehensive your data, the more you gain investors’ trust. The key here is to provide them with authoritative data that truly matters.

Competitor Intelligence

Markets are competitive arenas, and the best-prepared contestants run the highest chance of winning. Preparation means gathering competitor data to understand their strengths, weaknesses, and uniqueness.

How companies like to present themselves is one thing, how others portray them is another, and neither tells the whole story. Especially when it comes to regulatory compliance issues, no one is keen to share the challenges, let alone the glitches.

The media can’t save the day here. News about regulations will appear only when there’s public interest or a juicy story around it. Unfortunately too many businesses rely on the media as their main information source.
How about turning to the internet? An SEO manipulated Google search doesn’t produce the type of intelligence companies can depend on. What they need are mentions of competitors in government filings, patent registrations, or other listings unaffected by social media or publicity.

Corrupt and illegal practices

There can be a thin line between legal and illegal, and often it’s in the small print. Your clients depend on you to provide them with reliable info that draws definitive lines and clears up the confusion.

Dependable web data can facilitate internal policies to ensure regulatory compliance and raise awareness. With the local variations in rules and regulations and the frequent changes, it’s hard to keep track.

In some areas, such as cybersecurity and personal data privacy, legislation is still in its early stages, and additional regulations are slowly emerging. It’s critical to keep your clients in the know of developments so they can remain compliant.

Additionally, it may be necessary to keep an eye on specific companies or personalities. Watchlist screening on PEPs (Politically Exposed Person), sanctions, or adverse media mentions can help expose legal or regulatory risks.

Workplace health and safety

Employers need to protect themselves and their workers. OSHA (Occupational Safety and Health Administration) regulations mainly apply to manufacturing or industrial organizations.

However, during the past two years, we’ve all learned the importance of keeping up with safety measures and health precautions. We’ve also experienced the difficulty of getting the specific information that pertains to a particular issue, industry, or scenario.

This is another example that a simple Google search can not provide what’s needed. Search engines present results according to popularity or likelihood. But compliance is no matter of probability, and clients come to you for answers. They expect you to access the web data that leads to conclusive answers and provides dependable reports.

Many areas of a business rely on government data because news outlets or media monitoring can’t provide the granularity of information required. Non-media-dependent data provides a solid foundation for risk intelligence so companies can build strategies to mitigate operational, societal, environmental, legal, and regulatory risks.

How to stay on track with fast-changing regulatory data?

Regulatory compliance risk management is tricky in a market where the compliance target is constantly moving. 

Consultants and auditing companies have the expertise and the knowledge. But obtaining the relevant data and ensuring its authenticity is becoming more and more challenging. At the same time, the demand for this type of data is increasing.

This is where can assist. Our Gov Data API gives access to the latest data from government and regulatory agency sites to get to the accurate, authoritative and current web data that delivers up-to-date information in the right context at the time it’s needed. Want to understand what can do for your business and your clients? Talk to one of our experts today.


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