Regulatory compliance refers to a company’s adherence to laws governing safety, hiring, accounting, tax reporting, and environmental regulations. Non-compliance can result in lawsuits, fines, and loss of reputation. Internal compliance is also important to prevent fraud and illegal practices.
Regulatory compliance is the extent to which a company follows the laws that guide the business. The term can refer to many different areas of industry and commerce, including safety regulations, hiring practices, accounting and tax reporting, and environmental regulations. Many companies create programs, such as internal audits, security audits and various types of tests, to ensure compliance with any applicable regulations.
Some issues that require regulatory compliance revolve around the employer/employee dynamic. Non-discriminatory hiring policies, family leave, salary levels, permitted working hours, and restrictions on hiring minors can all be the result of regulatory compliance. These regulations are often the result of government laws, but they can also come from labor or unions. If a company fails to comply with mandatory regulations regarding its employees, it runs the risk of civil lawsuits and strikes.
Maintaining regulatory compliance in industry often has to do with working conditions and safety procedures. These regulations may establish rules about which type of employees can perform which tasks and which safety precautions are required for each type of job. Companies can efficiently monitor their regulatory compliance, and often do, but a complaint can trigger an inspection of the facility by a representative of a regulatory body. Violations of safety or manufacturing regulations can lead to a diminished reputation, loss of government contracts, fines, increased danger to workers, and possible lawsuits in the event of injury or death due to company negligence.
Environmental standards are becoming a very important area of regulatory compliance in the 21st century. Governments, concerned about rising pollution levels, have begun setting limits on the amount of air, water or soil damage businesses allow. Violators risk hefty fines, although some programs allow for alternative solutions, such as the trading of carbon credits. This allows heavy polluters to raise their ceiling by purchasing excess carbon credits from non-polluting businesses. Compliance with environmental policy regulations can be monitored by government-based environmental departments, such as the Environmental Protection Agency (EPA).
Internal regulatory compliance usually refers to the level to which a company follows its own rules. Failure to comply with internal policies can open the door to fraud, embezzlement and illegal practices within the company. If employees are able to circumvent internal policies, this also creates the potential for non-compliance with government and union regulations, which can lead to huge business consequences. Many companies create rigorous internal auditing and training programs to ensure that all departments comply with internal and external regulations.
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