Most small businesses do not need to worry about compliance too much – the rules and regulations that form the small business regulatory framework are relatively simple. However, there are certain industries where these regulations are complicated and if a business becomes large enough in any industry it starts to need better compliance tools and technology. The reason compliance is such a crucial part of any such organization is that it controls what the business can and cannot do. A misstep in compliance can result in harsh penalties – from monetary fines to the cancellation of the business license.
The penalties that an organization can expect for a compliance violation depends on the damage a violation can cause to society. Small violations, for instance about the allowed signage in a business, generally result in slight penalties. Sometimes the business may get away with just a warning to fix the issue before the next inspection. The financial penalties levied in such a scenario are also not severe, generally limited to a few hundred dollars, which is not a major problem for any business that can generate even a small profit.
Where compliance truly matters
There are some industries where a compliance violation can cause a lot of damage to the environment and people. Think of the healthcare industry – a mistake in the healthcare sector can result in someone losing their life or suffering some sort of a permanent disability. That is why healthcare businesses focus so much on compliance – they know that the cost of making a mistake is too high. The same is true for the energy sector, particularly the businesses involved in oil, gas, or nuclear power generation. A mistake in an oilrig can cause hundreds of millions of dollars of damages. It can also release millions of gallons of pollution in the ocean, resulting in permanent harm to the ecology of the area.
The same is true for businesses in the financial sector, one of the most heavily regulated sectors of the economy. Now, it may seem like the stakes are vastly different when it comes to the financial sector businesses. They cannot kill anyone through their policies neither can they release a lot of pollution, the worst that can happen is some monetary damage, then why is the sector so heavily regulated? Most people who were adults in 2008 will be able to tell you the simple answer to this question – the financial sector is, perhaps, the most vital part of our economic system and a shock to the sector results in reverberations being felt all around the world.
Building a better system for compliance
When an autopsy of the 2008 financial crisis was performed, the most surprising discovery is how much of it could have been avoided. The problem was with information silos – all the warning signs were present for those who would look for them, but since they would only be visible when investigated, no one knew they should be looking for them. The documents and figures which showed that the derivatives market was weak were hidden out of reach to the rest of the market. That is why since 2008 so much time has been spent on creating solutions that would automate monitoring.
Automated monitoring is essential in compliance because it acts as the first line of defense. Even if people make a mistake, the system can catch it. Most large enterprises already have enterprise compliance management solutions in place. This helps them any compliance violations as quickly as possible so those violations can be resolved before they are added to the system. This technology was out of reach of smaller businesses, because it cost millions of dollars to implement and then maintain. The biggest banks in the country could easily invest millions of dollars for compliance.
The technology is finally in the reach of small businesses too. They can now simply implement a single platform which controls compliance information all across the organization. This means that the person at the bank who is signing up a new customer will enter information into the same platform being used by the chief compliance officer and the board. This means that if there is any information which should be visible at the top, it becomes instantly available to all the stakeholders in the organization. As these systems become more intelligent and the cost gets even lower, almost every business will implement compliance monitoring technology.