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What is regulatory compliance?

By Scott Robinson

Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business processes. Violations of regulatory compliance often result in legal punishment, including federal fines.

Examples of regulatory compliance laws and regulations include the Payment Card Industry Data Security Standard, or PCI DSS; Health Insurance Portability and Accountability Act (HIPAA); Federal Information Security Modernization Act, or FISMA; Sarbanes-Oxley Act (SOX); the EU's General Data Protection Regulation (GDPR); and the California Consumer Privacy Act (CCPA).

Why is regulatory compliance important?

Since the turn of the century, the number of rules has increased, making regulatory compliance management more prominent in various organizations. This development has led to the creation of corporate, chief and regulatory compliance officer and compliance manager positions. A primary job function of these roles is to hire employees whose sole focus is to ensure the organization conforms to stringent, complex legal mandates and applicable laws.

Regulatory compliance processes and strategies provide guidance for organizations as they strive to attain their business goals. Audit reports proving compliance help companies market themselves to customers. For example, System and Organization Controls 1 reports enable vendors to prove compliance with regulations such as SOX. Being transparent about compliance processes helps clients build trust in business processes and potentially improve the company's profitability.

Some regulatory compliance rules are designed specifically to ensure data protection. Poor data breach compliance processes can hurt customer retention and negatively affect a company's bottom line. With the frequency of data breaches continuing to increase, consumers are placing more trust in companies that closely follow regulatory compliance mandates designed to protect personal data.

Data privacy-specific regulatory compliance mandates, such as GDPR and CCPA, have become more common as companies' handling of consumers' personal data has come under scrutiny.

What are the challenges of regulatory compliance?

Companies that do not follow mandatory regulatory compliance practices face numerous possible repercussions, such as being forced to participate in remediation programs that include on-site compliance audits and inspections by the appropriate regulatory agency. Noncompliant organizations usually face monetary fines and penalties. Brand reputation can also be damaged by companies that experience repeated -- or particularly glaring -- compliance breaches.

Following compliance rules can be costly from an infrastructure and personnel standpoint. As companies are required to spend capital to comply with compliance laws and regulations, they must also try to appease stakeholders and maintain business processes by turning a profit. These financial challenges surrounding compliance are particularly acute in highly regulated industries, such as finance and healthcare. Other business strategy-associated challenges that come with maintaining regulatory compliance include the following:

• Determining how emerging regulations will influence business direction and existing business models.
• Incorporating and developing a compliance culture and promoting this culture throughout the organization.
• Deciding on and hiring compliance roles and accountabilities, as well as the compliance functions required by legal, compliance, audit and business departments.
• Anticipating compliance trends and integrating regulatory processes that increase efficiency.

Constantly evolving consumer technologies also pose compliance complications for companies. The use of personal mobile devices by employees in the workplace, for example, creates compliance concerns because these devices store sensitive, compliance-relevant company data. The proliferation of the internet of things (IoT) has led to huge growth in the number of endpoints and interconnected devices, and the lack of security for mobile and IoT devices creates compliance vulnerabilities in organizations' networks. For digitized companies to remain compliant, they must stay on top of required updates and immediately patch existing software when vulnerabilities are detected.

Compliance programs can be especially challenging with big data and machine learning, as more companies are dealing with increasingly vast bodies of sensitive data. Regulations frequently require strict policies and protocols to ensure the protection and proper management of data -- and the more data there is to consider, the greater the expense and necessary effort to achieve compliance.

It can also be difficult to keep employees as aware as they need to be to achieve compliance and costly to properly train them, especially in large, widely distributed organizations.

What are the benefits of ensuring regulatory compliance?

On the surface, regulatory compliance programs can often be costly and burdensome -- but there are the following upsides:

• Solid legal coverage. Diligent compliance holds off fines, penalties and costly lawsuits and can steer the organization clear of expensive shutdowns and intrusive investigations.
• Avoidance of breaches and fraud. A fully compliant organization is less likely to suffer data breaches, hacks and fraud, as business continuity is generally more reliable.
• Efficiency. Standardized compliance policy often makes business operations smoother overall.
• Enhanced trust and confidence, within and without. When full compliance is vigorously pursued, in-house personnel, customers and partner companies all have greater confidence in the organization's competence and business ethics. This often translates into a competitive advantage.
• Stakeholder protection. Strong compliance policies mean that data, processes and methodologies, business relationships and investors' interests are better secured.

How is compliance different across industries and countries?

Some industries are more heavily regulated than others. For example, the financial services industry is subject to regulatory compliance mandates designed to protect the public and investors from nefarious business practices. Energy suppliers are subject to regulations for safety and environmental protection purposes. Government agencies are required to follow compliance regulations that mandate equality and ethical staff behavior.

Healthcare companies are also subject to strict compliance laws because they store large amounts of sensitive and personal patient data. Hospitals and other healthcare providers must demonstrate they have taken steps to comply with patient privacy rules, such as providing adequate server security and encryption. HIPAA outlines data privacy and security mandates designed to secure patients' medical information. The HIPAA Breach Notification Rule, for example, requires compliant organizations and their business associates to notify patients following a data breach. In addition to healthcare providers, cloud service providers and other business associates of healthcare organizations must also comply with HIPAA privacy, security and breach notification rules.

Regulatory compliance mandates vary by country. SOX is U.S. legislation, but similar regulations include Germany's Deutscher Corporate Governance Kodex and Australia's Corporate Law Economic Reform Program Act 2004. In general, U.S. compliance laws are more sector-specific; EU regulations tend to be more unified and comprehensive. In China, regulations require strict data localization and censorship; and Middle East and Africa regulations are patchwork, by comparison.

Multinational organizations must be cognizant of the regulatory compliance rules of each country in which they operate. For example, GDPR went into effect in 2018 and applies to all data produced by EU citizens, regardless of whether the company collecting the data is located within the EU. GDPR also applies to all people whose data is stored within the EU, regardless of whether they are EU citizens.

GDPR expanded consumers' data privacy rights by including transparency mandates that force businesses to inform customers how their personal data is used. For example, companies operating under GDPR compliance rules are required to notify all affected parties and supervising authorities of a data breach within 72 hours.

Under CCPA, California residents are given the right to know what data is being collected about them, whether that information is sold and the ability to refuse that data being sold. The act also mandates that consumers can access any of their personal information collected by CCPA-compliant companies.

As of early 2025, 16 U.S. states have consumer data privacy legislation under consideration. Countries such as Australia, Argentina and Canada have established comprehensive data privacy laws at the federal level.

What are some compliance regulations?

In the U.S., compliance standards tend to be organized by industry. In Europe and elsewhere, some compliance standards are cross-industry. The following are some of the major standards:

INDUSTRY	MAJOR COMPLIANCE STANDARDS
Finance & Banking	SOX; Dodd-Frank (U.S.); Basel III (international)
Healthcare	HIPAA (U.S.); GDPR (EU), MDR (EU)
Technology, IT	ISO/IEC 27001 (international); PCI DSS (international)
Workplace Safety	OSHA (U.S.); Fair Labor Standards Act (U.S.); ILO (international)
Data Privacy, Security	GDRP (EU); CCPA, CPRA (U.S.); China Cybersecurity Law & PIPL
Environmental	EPA regulations; ISO 14001 (international)

The following provides a brief explanation of each of these standards:

• SOX. Sarbanes-Oxley addresses financial reporting accuracy and provides anti-fraud policies.
• Dodd-Frank. This 2010 U.S. law protects consumers by promoting banking transparency and accountability.
• Basel III. This framework sets standards covering capital and risk management and liquidity.
• HIPAA. Protects patient privacy.
• GDPR. GDPR provides broad cross-industry data privacy laws and serves as a high global standard for data protection.
• MDR. Medical Device Regulation ensures safe performance and accuracy of medical devices.
• ISO/IEC 27001. The International Organization for Standardization serves as the global standard for information security management systems.
• PCI DSS. This standard is designed to protect cardholder data from security breaches and fraud.
• OSHA. The Occupational Safety and Health Administration provides the standard for worker health and safety.
• Fair Labor Standards Act. Set in 1938, this labor law creates standards for wage, overtime and labor protections.
• ILO. The International Labour Organization sets standards for worker rights, safety and fair labor practices.
• CCPA/CPRA. The California Consumer Privacy Act/Privacy Rights Act is the standard for consumer data rights in California.
• CSL and PIPL. China's Cybersecurity Law and Personal Information Protection Law set standards for data localization and strict privacy.
• EPA regulations. The Environmental Protection Agency provides standards for the management of pollution, emissions and hazardous materials.
• ISO 14001. This environmental management standard provides a framework for sustainable operations.

What are some consequences of noncompliance?

The range of consequences for noncompliance with regulatory standards is considerable, from the near-trivial to the very grave. They include the following:

• Fines and sanctions. Hefty fines, climbing into the tens of millions of dollars, are not uncommon.
• Business disruption. Noncompliance can force suspension of operations, loss of certifications and investigations that can hamper operations.
• Criminal and legal liability. When noncompliance is established, regulators, competitors and customers can all initiate legal remedies; executives can face criminal charges for fraud and willful negligence.
• Data breaches. Hardly a day goes by that the world doesn't hear of another major data breach, resulting in losses of millions of dollars and consumer trust.
• Reputational damage. Compliance policy failures can affect the confidence of both customers and partner companies.

How do companies ensure regulatory compliance?

Regulatory compliance requires companies to analyze their unique requirements and any mandates specific to their industry and then develop processes to meet these requirements. Typical steps to achieve regulatory compliance include the following:

1. Identify applicable regulations. Determine which laws and compliance regulations apply to the company's industry and operations. These include federal, state and municipal rules.
2. Determine requirements. Identify the requirements in each regulation that are relevant to the organization and consider plans on how to implement these mandates.
3. Document compliance processes. Clearly document compliance programs, with specific instructions for each role involved in maintaining compliance. This information will be useful during regulatory audits.
4. Adopt a compliance framework. Standards for compliance are available. These include ISO 19600, the National Institute of Standards and Technology and COSO, which can be aligned with corporate policies and existing risk management.
5. Leverage automation. Compliance management software is available from numerous vendors and many regulated processes, including auditing, monitoring and reporting, can be easily automated today.
6. Monitor changes and determine whether they apply. Compliance requirements are constantly updated. Changes must be monitored to determine whether they are relevant to the company. If they are, implement updated procedures and train the appropriate staff on these updates.

In-house compliance audits should be conducted regularly to review the organization's adherence to regulatory guidelines. These in-house audit reports should closely evaluate compliance processes and their associated policies, such as user access controls.

In-house audits also help prepare organizations for externally conducted formal compliance audits carried out by independent third parties. These audits are required per some regulatory compliance mandates and are designed to measure if an organization complies with specific state, federal or corporate regulations.

The future of regulatory compliance

What's in the future for regulatory compliance? The use of technology to achieve it will increase, as machine learning, blockchain, natural language processing and other technologies become more prominent. Compliance programs will become more real-time, as continuous compliance monitoring gradually replaces the periodic audit. Though it has been slow-moving so far, there is an effort underway to harmonize international standards. And AI will become increasingly ubiquitous in performing forecasts of risk and the likelihood of violation.

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