Why Non-Compliance Is the Real Risk
As a financial leader, ensuring that our organization is always on the right side of compliance feels like juggling while blindfolded. The dynamic nature of regulations is like a never-ending puzzle, constantly shifting and changing its pieces as the online landscape continues to evolve.
I recall a scene from a TV show a few years back when an acclaimed attorney stated, “The problem with international law is that most of it hasn’t been written yet.”
It’s the same issue with regulations pertaining to things like data, privacy, and appropriate access. The more information is stored and accessed digitally, the more regulations are needed to ensure that people and entities are protected from nefarious schemes and threats. Governmental and industry regulators are struggling to keep up. This challenge is particularly acute in emerging technologies, where AI compliance frameworks are still being developed and refined.
How Evolving Regulations Create Compliance Gaps
So more regulations are written. More laws are created. And with more regulations and laws, of course comes the challenge of being compliant with those regulations. More specifically, the challenge is actually with NOT being NON-compliant.
Non-compliance is where the risks reside.
The Burden of Overlapping Compliance Laws Across Jurisdictions
Each jurisdiction can have its own set of rules.
For example, a geographic jurisdiction, such as the State of New York, has the NY SHIELD Act. A professional jurisdiction, such as “tax preparers” has another set of regulations, such as the requirement for a WISP (Written Information Security Plan).
Where does your organization fit in? What various regulations are you subject to? Could you be missing something crucial? (Spoiler alert: Yes, you very well could be.) Understanding federal compliance gaps and exposure is a critical next step in knowing exactly where your organization stands.
Perhaps the question is how do we keep informed AND how do we make this knowledge actionable. How do we ensure the need for compliance penetrates every level of our organization, from the top brass to the entry-level employees?
Inadequate Compliance Training: A Hidden Cost of Non-Compliance
So, how do we overcome this? Could adopting a mindset of learning agility, where we cultivate resources within and beyond our organization, be the answer to this perpetual challenge? Are there areas where reallocating resources could lead to more effective training outcomes?
Financial Penalties and Business Losses Caused by Non-Compliance
Non-compliance has the opportunity for too many hits to a business’s financial security:
- Unexpected and unbudgeted fines (that could easily and quickly mount into the hundreds of thousands of dollars, depending on the infraction)
- Loss of existing customers or clients
- Loss of future revenues / lost opportunities
- Long-term damage to reputation
- Resource drain resulting in employee turnover
- Rejected insurance claims resulting in more unbudgeted expenses
Now, we must question ourselves: are there safeguards we can put in place to mitigate these unwelcome surprises? What steps can we take today that will make a significant impact tomorrow? Implementing proactive cybersecurity measures is one critical step that can dramatically reduce compliance risks.
Charting a Path Forward
Recognizing the risks is just the beginning. It’s time to be proactive in seeking solutions. The choices we make today in understanding and implementing compliance standards can transform the way we do business. Building operational resilience ensures your organization can adapt and thrive even when compliance requirements shift unexpectedly.
Reflect upon this: what small actions can you take now to build a resilient future against the tide of compliance changes? How can you cultivate a culture of continuous learning and adaptation within your team?
Partnering for Compliance: When Outside Help Makes Sense
Are you equipped to stay abreast of the ever-changing compliance landscape, or does it make sense to partner with an outside company who is embedded in this world every day?
General compliance concerns naturally lead to specific areas in which compliance is critical. Are you explicitly reviewing the specialized compliance concerns inherent in cyber liability insurance policies?
Compliance Costs vs. Non-Compliance Risks: What Financial Leaders Must Weigh
Compliance and everything it entails – staying abreast of changes, maintaining internal training, working with an outside partner, etc. – these things do have costs associated with them, but they’re budget-able and predictable. The risks of non-compliance, however, can far outweigh those predictable costs and turn into an unbudgeted nightmare for any financial leader.
Frequently Asked Questions
What are the financial consequences of non-compliance for a business?
Non-compliance has the opportunity for too many hits to a business's financial security: unexpected and unbudgeted fines (that could easily and quickly mount into the hundreds of thousands of dollars, depending on the infraction), loss of existing customers or clients, loss of future revenues / lost opportunities, long-term damage to reputation, resource drain resulting in employee turnover, and rejected insurance claims resulting in more unbudgeted expenses.
Are the costs of staying compliant worth it compared to the risks of non-compliance?
Compliance and everything it entails – staying abreast of changes, maintaining internal training, working with an outside partner, etc. – these things do have costs associated with them, but they're budget-able and predictable. The risks of non-compliance, however, can far outweigh those predictable costs and turn into an unbudgeted nightmare for any financial leader.
How can organizations keep up with overlapping compliance regulations across different jurisdictions?
Each jurisdiction can have its own set of rules. For example, a geographic jurisdiction, such as the State of New York, has the NY SHIELD Act. A professional jurisdiction, such as 'tax preparers' has another set of regulations, such as the requirement for a WISP (Written Information Security Plan). Perhaps the question is how do we keep informed AND how do we make this knowledge actionable. How do we ensure the need for compliance penetrates every level of our organization, from the top brass to the entry-level employees?