What Are Some of the Consequences for Non-Compliance?
Legal and regulatory non-compliance are an increasingly relevant concern in the business world, with fines and penalties being very significant in some cases. The reality is that the true cost of non-compliance isn’t just monetary penalties, non-compliance consequences may extend beyond the monetary and into other realms such as exclusion from professional organizations or even damage to a brand or company image.
The all-encompassing nature of the fines, penalties, and other adverse consequences stemming from regulatory compliance issues has prompted savvy business leaders to seriously consider non-compliance in their risk management strategies.
The Financial Consequences of Non-Compliance
The fines and monetary penalties associated with regulatory non-compliance are perhaps the most well-known consequences. Fines can be significant, ranging from hundreds of dollars to hundreds of millions depending upon the nature of the offense.
Take the case of nearly a dozen major banks that were recently fined a combined $1.8 billion dollars by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). These precedent-setting fines came after banks such as Bank of America, Citigroup, Deutsche Bank, Morgan Stanley, and Goldman Sachs, among others, were found to be using “pervasive off-channel communications.” In short, bank employees were permitted and even encouraged to use messaging apps such as WhatsApp, Signal, and iMessage to communicate with clients. But these platforms lack the tools needed to achieve regulatory compliance, specifically as it relates to record-keeping laws and regulations. The result was a “landmark case” of regulatory non-compliance, with tremendous monetary fines and lots of negative press coverage, which dovetails with our next non-compliance consequence: damage to a company’s public image.
Bad Press and Reputation Damage as a Consequence of Regulatory Non-Compliance
Press coverage and social media chatter are commonplace when an especially notable or egregious non-compliance situation arises. The impact of negative press can be profound, with a company name or brand identity suffering to the point where it is no longer profitable. For those brands and companies that do survive, the cost of reputation restoration and public relations damage control is often significant and efforts may span many months or even years.
Larger, more prominent companies are especially prone to this consequence of regulatory non-compliance. But even smaller companies can find themselves swept up in a sea of negative media if the non-compliance situation involves a hot-button issue such as the environment, blatant dishonesty or serious ethical violations, and the like.
This consequence is really two-fold: you have the cost of damage control and there are lost business opportunities to consider as well. To the latter point, a company may lose clients and customers in addition to missing out on various professional opportunities because others within the industry do not wish to be associated with an organization that is at the source of controversy. In fact, that is actually one of the other regulatory non-compliance consequences to be discussed: exclusion from industry groups and organizations.
Exclusion from Professional Organizations and Events as Consequences of Regulatory Non-Compliance
Many of the more intensely-regulated industries such as the investment and financial sector also have a large number of industry-specific organizations. Involvement with these groups is often essential for success, with the organizations hosting networking events and issuing credentials or certifications.
It is not uncommon for these industry organizations to require a company to remain in good standing with the various groups that perform regulatory oversight. In these cases, regulatory non-compliance may serve as grounds for temporary or permanent dismissal from the organization and all of its events.
Consumers often use certifications from industry organizations as a sign that a company is reputable and trustworthy. When this certification is withdrawn or revoked due to regulatory non-compliance, business often suffers as a result.
A ban from an industry group’s events is also impactful since conventions, conferences and networking events all serve as valuable opportunities to connect with colleagues, clients and customers.
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Remediation as a Regulatory Non-Compliance Consequence
There are many cases where a company is required to perform remediation when a situation involving non-compliance is identified. Remediation can take many forms depending upon the nature of the regulation and the industry. For example, a situation of regulatory non-compliance involving a manufacturing facility that improperly disposed of contaminated water may be ordered to fund the clean-up of the affected area. Meanwhile, a case involving improper document and data handling may call for the implementation of a new data management platform and policies. The remedy will vary but the overall objective is always to achieve (and maintain) compliance.
Remediation almost always comes hand in hand with a monetary fine or penalty. Generally, this consequence is not intended to be punitive; remediation orders are usually corrective in nature. That said, remediation orders can lead to a significant burden on a company both financially and operationally. An environmental clean-up effort can carry a hefty price tag, while the implementation and deployment of a new data management infrastructure can place a tremendous strain on employees and a company’s operations as a whole. Therefore, it is always prudent to identify and address any problem areas before regulatory non-compliance becomes an issue. This way, a company can address and correct any problems in a manner that works with their budget and their timeline.
The right technology can go a long way toward helping a business to achieve its regulatory compliance goals. The right data management platform empowers a business to manage its data in a compliant, regulation-friendly way, while risk management software provides a broader solution.
At iTech, risk management software is among our specialties. Our talented developers have created innovative enterprise risk management solutions, such as risk management and GRC software platforms for clients in a broad variety of industries. Reach out to iTech today to discuss your legal and regulatory compliance needs and we’ll collaborate to develop a solution that will help your company avoid non-compliance and its many consequences.