Ingenuity and entrepreneurial spirit have always been important ingredients for success and growth in a competitive market. With so many challenges and considerations that entrepreneurs have to consider when starting a business, there is already something to worry about. Add regulatory risk to the matrix of business challenges and you've got a huge sum.
According to a report by the US Chamber of Commerce Foundation, federal regulations cost the US economy $1.9 trillion a year in direct costs, lost productivity, and higher prices. In addition, non-compliant businesses pay on average 2.71 times what they pay for compliance registration.
Few industries are immune to regulatory risk. According to Industry Today, manufacturing tops the list of most regulated sectors with over 200,000 regulations, and in the same report, finance and insurance are the second most regulated sectors with almost 128,000 related regulations. Other highly regulated domestic and international industries on Deloitte's curated list include healthcare, transportation, life sciences, energy, agriculture, construction, defense, and postal services.
While compliance creates headaches, rules play an important role. There are many government regulatory agencies, such as the Environmental Protection Agency (EPA), the Food and Drug Administration (FDA), the Securities and Exchange Commission (SEC), and the Federal Trade Commission (FTC), to protect consumers and equity at home and abroad. . . tax environment and encourage fair and ethical practices. But with so many regulators and policies, it's no surprise that countless companies find themselves embroiled in potential regulatory breaches.
Having the tools to avoid fines for non-compliance and avoid regulatory risks is critical to the financial health and longevity of your business. Regardless of your industry, regulatory risk is a constant threat due to robust and ever-changing policies that come at a huge cost if you are not adequately protected or fully compliant. The following methods can help protect your business from rising costs and increased risk of non-compliance.
Related: risk taking, entrepreneurial and intellectual disobedience .
Start with a solid foundation
Most importantly, make sure the people you hire embody the values and character you feel are important to your business. Ultimately, compliance often comes down to trust: the ability to trust that employees will abide by and comply with the rules, and to value the protection the rules provide for consumers and end users.
Considering government regulations and regulatory risks, this principle is an important factor in your company's ability to comply with the rules set by governing bodies, especially when your employees are carrying out your company's mission and their efforts can contribute to federal regulatory compliance. rules for collaboration. generally. Policy enforcement and policy/regulatory education also helps keep employees informed of changes in regulatory standards and continue to contribute positively to your business.
Meet the conditions or risk it all
From a business perspective, your company should conduct ongoing internal audits to identify vulnerabilities and analyze areas of potential current or future risk. Building a compliance team/manager is also a great idea to make sure your business complies with the requirements given by government agencies and you don't incur their wrath.
As for fines, Chron says companies that unknowingly violate health regulations must pay a minimum of $5,000 for each violation. Up to $70,000 per violation if the company is found to have intentionally violated the rules. For small and medium businesses, this can be devastating and seem like an unequal punishment, as only a few large companies are affected by the fines.
A specific example of a regulatory breach and its cost is targeted fines in 2017 and the General Data Protection Regulation (GDPR). In 2013, Target's system was hacked and 41 million payment card accounts of its customers were compromised. Target then settled a $10 million class action lawsuit with the victims of the hack. While Target didn't abuse its customers' data, it was still a violation.
Given the strict rules and restrictions imposed by the GDPR, this cost Target an additional $18.5 million in an interstate settlement in 2017 — invariably tens of millions of dollars in fines.
RELATED: Targeted Security Breach Highlights Need for Better Cyber Security
Protect your business
According to a McKinsey & Company report, traditional insurance companies and their associated policies can protect your business from non-compliance. While traditional insurance is still lagging behind in terms of issuing new policies immediately, it is struggling to keep up with rapidly changing economic and regulatory conditions.
Another option for transferring risk is captive insurance. A captive insurance company is owned by a company or company owner and is a form of self-insurance in which premiums (less claims) are retained as profits. For risks such as regulatory non-compliance, standalone insurance is particularly well suited to risk mitigation because policies can be written more broadly and adapted to address a complex and evolving threat such as regulatory risk. It can also fill in gaps in a traditional insurance policy and ensure that an exception does not prevent claims from being paid.
On the subject: What should business and government do when innovation outstrips regulation?
When growing a business in a highly regulated industry, it is extremely difficult to keep abreast of changing regulations and policies unless you have dedicated compliance experts on your team. However, not all companies are in a position to fulfill this role. Therefore, companies must follow best practices and have the resources to adequately address and mitigate risks.