The Serious Consequences of Non-Compliance: Lessons from the CrowdStrike Outage

In July 2024, CrowdStrike encountered a situation no company wants to experience. What began as a service outage soon became a much larger issue when it was revealed that they had not fully met industry compliance standards. The potential fines they faced were as high as $46 million. But the financial impact wasn’t the only concern. They were also at risk of facing public reprimands, regulatory action, and possibly losing their authorization to operate. What started as a technical disruption quickly escalated into a crisis with long-term consequences that extended far beyond the outage.

This case highlights how non-compliance can turn a manageable incident into a significant business risk. It is not just about the fines. Non-compliance can lead to legal challenges, damage trust with customers, and disrupt business operations in difficult-to-recover ways. Compliance is not only about avoiding penalties but also about protecting your business’s future and ensuring long-term stability.

In this discussion, we will explore the consequences businesses face when they fail to comply with regulations. From financial penalties and legal issues to operational disruptions and reputational harm, non-compliance brings risks that can have lasting effects. Staying aware of these risks is essential for any company that wants to thrive in today’s regulated environment.

• Financial Penalties: The Immediate Hit to Your Bottom Line: One of the most immediate consequences of non-compliance is financial penalties. For example, Amazon was fined €746 million by the Luxembourg National Commission for Data Protection for violating GDPR rules. This example shows that even the largest organizations are not exempt from regulatory action, and the financial impact can be severe. The financial burden can be devastating for smaller companies. Beyond paying fines, organizations often face additional costs, such as legal fees and the resources required to correct compliance issues. In many cases, these costs far exceed the initial penalty, limiting funds that could have been used for growth and innovation.

• Reputational Damage: Trust That’s Hard to Win Back: Financial penalties are only part of the problem. Losing the trust of your customers can have far longer-lasting consequences. WhatsApp faced a €225 million fine from the Irish Data Protection Commission for not adequately informing users about data-sharing practices. Following the fine, the company’s reputation hit, with users expressing concerns about their privacy and many moving to alternative messaging platforms. According to Edelman’s report, 81% of consumers say they need to trust a brand before purchasing. When a company is found to be non-compliant, rebuilding that trust can take years, and the reputational damage can be even more challenging to overcome than the financial penalties.

• Operational Disruptions: When Compliance Failures Slow You Down – Non-compliance doesn’t just affect your finances and reputation. It can disrupt your business operations. For example, British Airways was fined £20 million for breaching GDPR. This led to internal disruptions, as the company had to divert resources to deal with compliance issues, causing delays in other projects. The operational fallout of non-compliance can be significant. According to the study by Globalscape and the Ponemon Institute, companies experience an average operational loss of $5.1 million due to business disruptions caused by regulatory actions and the need to address non-compliance. These delays can lead to missed business opportunities, lost clients, and reduced competitiveness.

• Legal Actions and Imprisonment: Holding Individuals Accountable – In exceptional cases, non-compliance can result in legal actions against the organization and individuals. If they are found to have failed in their responsibilities, these officers can face personal legal action, including fines or imprisonment. For instance, a financial services executive in Australia was held personally accountable for non-compliance with anti-money laundering regulations. This clearly conveys that compliance officers and company leaders are personally responsible for ensuring their organizations meet regulatory standards. Failure to do so could result in personal consequences, including legal penalties and imprisonment.

• The Domino Effect: How Non-Compliance Leads to Broader Business Risks – Non-compliance can create a domino effect within an organization, where one failure cascades into multiple challenges that compound over time. It starts with financial penalties, legal issues, and operational disruptions, but the broader impact often extends further, affecting relationships with partners, vendors, and regulators. When a company is found to be non-compliant, partners and vendors may start questioning their involvement with the organization. In industries where collaboration is key, non-compliance can lead to the breakdown of strategic partnerships. For instance, when a business faces regulatory action, other companies may reconsider their association, fearing that the connection could tarnish their reputation.

Furthermore, compliance failures can also hurt future business opportunities. Companies with a record of non-compliance may find it harder to secure contracts, especially in sectors where stringent regulatory standards are a prerequisite. Government contracts, for example, often require companies to demonstrate a clean compliance record. A history of non-compliance can disqualify businesses from these opportunities, resulting in significant lost revenue.

Regulators, too, tend to increase their scrutiny of organizations with a history of non-compliance. This can lead to more frequent audits, further draining resources and putting additional pressure on the organization to stay in line with regulations. It becomes a cycle where the company is constantly on the back foot, struggling to recover from past mistakes while trying to move forward.

Compliance as a Competitive Advantage: Leveraging IBM OpenPages

While the consequences of non-compliance can be serious, companies that invest in robust compliance solutions can turn these challenges into opportunities. In today’s highly competitive business, where customers, partners, and regulators demand transparency and accountability, prioritizing compliance helps avoid penalties and builds a company’s reputation for reliability.

Businesses can strengthen their compliance framework by using advanced tools like IBM OpenPages, a comprehensive platform for integrated risk management. IBM OpenPages provides real-time monitoring, data analysis, and risk assessments, empowering organizations to stay ahead of evolving regulatory demands. With IBM OpenPages, businesses can ensure they meet compliance standards efficiently and effectively, reducing the risks of regulatory fines and operational disruptions.

Additionally, IBM OpenPages helps organizations streamline operations by enhancing audits and preventing business disruptions. With better compliance management, companies can focus more on innovation and growth rather than constantly playing catch-up with regulations.

iTech GRC, as a premier partner of IBM OpenPages, offers managed services to businesses looking to implement or upgrade this powerful compliance solution.

Recap and Key Learnings: Strengthening Your Cybersecurity Resilience

Over the course of this series, we’ve explored several crucial aspects of managing third-party risks and incident response, offering practical guidance on how to build a more resilient organization. Let’s take a moment to recap the key learnings from each step of the journey:

• Third-Party Risk Assessment: Ensuring Vendor Security

We started by focusing on assessing third-party vendors, especially those providing critical cybersecurity services like CrowdStrike. The CrowdStrike outage highlighted how vulnerable organizations can be when they rely on external vendors without thoroughly assessing their risk management strategies. We introduced a detailed questionnaire to help evaluate vendor security, ensuring that your partners are as resilient as needed. Continuous monitoring and risk assessments are essential for maintaining strong defenses.

• Building a Robust Incident Response Plan: Preparedness is Key

Next, we moved into building a comprehensive incident response plan. Preparation is vital, as demonstrated by the CrowdStrike outage, where even well-prepared companies faced challenges without a tailored response plan. Using IBM OpenPages’ IT Governance capabilities, we learned how to integrate risk management, data analysis, and incident management into a unified platform that improves response speed and effectiveness. This plan ensures your organization can handle third-party risks and respond quickly when incidents arise.

• Rapid Incident Response: The Critical First 24 Hours

The third blog in the series emphasized the importance of rapid action during the first 24 hours of a security breach. The quicker you respond, the more likely you are to contain the breach and minimize damage. We explored the key steps, including containment, evidence preservation, and communication, essential for managing an incident’s immediate aftermath. Effective incident response requires clear communication with internal teams, stakeholders, and authorities, all while ensuring that critical data is preserved for forensic analysis.

• Consequences of Non-Compliance: A Risk No Business Can Afford

Finally, in this current blog, we examined the serious consequences of non-compliance. Failing to meet regulatory standards doesn’t just lead to financial penalties; it also damages your reputation, disrupts business operations, and can even result in legal actions against individuals responsible for compliance. By focusing on compliance, companies can avoid these risks and turn adherence to regulations into a competitive advantage. Leveraging tools like IBM OpenPages helps streamline compliance efforts, allowing businesses to maintain strong operational continuity while meeting all requirements.

Final Thoughts: Moving Forward with Confidence

As we conclude this series, the overarching message is clear: being prepared is non-negotiable. From assessing third-party risks to building a response plan and acting quickly in the face of a breach, each step is critical in protecting your organization. Non-compliance is a risk no business can afford, but by taking proactive measures, you can avoid the pitfalls and emerge stronger.

If you haven’t already started integrating these strategies into your operations, now is the time. Reach out to us.