The Importance of Compliance
Talking about COMPLIANCE specifically refers to regulatory compliance, meaning the procedures and best practices adopted by organizations to ensure that all their stakeholders, from partners and executives to employees and third parties with whom they have any relationship—suppliers, the community, and more—comply with the various laws, regulations, and decrees applicable to them as entities, as well as the internal policies and codes of conduct and ethics. COMPLIANCE, therefore, is a set of procedures and best practices adopted by organizations to identify and classify the operational and legal risks they face and establish internal mechanisms for prevention, management, control, and response to them. The fundamental pillars of COMPLIANCE are:
- Commitment from the governing body, leadership, and corporate culture of COMPLIANCE;
- Risk and control management;
- Creation and monitoring of manuals, policies, and procedures;
- Implementation of training and awareness plans;
- Efficiency of monitoring systems and reporting channels;
- Effectiveness of internal investigations;
- Quality of reporting systems to committees, regulators, and senior management;
- Internal compliance audits.
According to the World Compliance Association (WCA), an international association with the goal of promoting, recognizing, and evaluating compliance activities in organizations, COMPLIANCE serves to identify and classify the operational and legal risks entities face, and also allows for the establishment of internal mechanisms for prevention, management, control, and response to these.
Although not new, COMPLIANCE is increasingly important for organizations due to, among other reasons, the regulatory context in which they operate, which is generally complex, demanding, and constantly evolving.
Therefore, managing compliance risks properly is necessary to avoid violations or improper behaviors that could lead to fines, penalties, financial losses, reputational damage, and loss of trust from stakeholders with whom the organization interacts.
In this sense, it is crucial to have a Compliance Department that ensures adherence to laws, regulations, decrees, and internal codes by all staff, thus ensuring operations based on ethical principles and integrity.
The importance of COMPLIANCE today is due to the fact that legislation and penalties for non-compliance in the business environment are becoming more complex; this has caused COMPLIANCE to function as a preventive tool in organizational management.
Correct implementation of COMPLIANCE in companies prevents penalties, reputational damage, and significant financial losses. Additionally, it not only covers regulatory compliance but also incorporates values voluntarily assumed by companies, such as integrity and morality, allowing the function of COMPLIANCE to go beyond legal requirements and help companies present an honest image and excellent reputation with stakeholders, especially customers.
For implementing COMPLIANCE in companies, it is recommended to create teams responsible for developing processes such as:
- A code of ethics;
- A conduct manual and anti-fraud policies;
- The establishment of a whistleblowing channel;
- Evaluation of criminal risks based on applicable sector regulations, as well as assessing their possible impact and consequences.
COMPLIANCE in companies reduces the risk of fraud by creating mechanisms and structures to actively involve all employees and executives in detecting corporate misconduct. It also optimizes process organization within the company, minimizes activities that could lead the organization into criminal liability, improves the detection of inappropriate behaviors in employees and executives, enhances the corporate image, and increases trust with stakeholders, especially customers, demonstrating commitment, responsibility, and integrity in all processes.
To achieve this, it is important to create governing bodies, which are organizational structures responsible for making key decisions and setting policies in an institution or entity. These bodies are designed to oversee and guide the organization’s activities according to its objectives and values. They exist in various contexts, from a country’s government to a company’s board of directors or a nonprofit organization’s executive committee. Their main function is to make strategic decisions and ensure that the entity’s objectives are met.
Since COMPLIANCE or regulatory compliance can be divided into different types depending on the regulatory areas they aim to cover, we can speak of various COMPLIANCE systems, ranging from broader and general legal COMPLIANCE systems to more specific systems, such as tax compliance, environmental compliance, technological compliance, or criminal compliance.
In any case, organizations will choose the COMPLIANCE management system that best suits their context, industry sector, size, and the compliance risks to which they may be exposed, among other factors.
Depending on the size of your company, the adaptation of COMPLIANCE needed will vary, and our firm can support you in analyzing and creating one tailored to your needs. You can contact us at namaya@lexincorp.com and/or infohn@lexincorp.com.
Written by: Lic. Nora Amaya
