In 2022 alone, the US Securities and Exchange Commission (SEC) imposed substantial penalties, reaching a record-breaking $6.4 billion in fines. Among these fines was a notable $1.1 billion resulting from the SEC’s intensified enforcement against the misuse of WhatsApp. In an effort to address compliance shortcomings, 16 prominent Wall Street firms were penalized for their failure to sufficiently monitor employee conduct and prevent the unauthorized exchange of confidential information through instant messaging platforms.

Corporate boards prioritize staying compliant considering the financial consequences and likelihood of lasting reputational damage. Organizations are now shifting to having clearly defined compliance departments with dedicated software and tools to manage risks and regulatory compliance. Ideally, such departments are intended to safeguard against risks such as:

• Safety deficiencies
• Money laundering
• Cyber breaches
• Compliance lapses
• Bribery
• Corruption

This type of targeted funneling of resources goes a long way in assuring stakeholders that all operations are within regulatory norms. However, if the past is any indicator, many such programs fail to protect against the very transgressions they were meant to protect. Top reasons for this could include the gap between occurrences of such incidents, implying a false sense of compliance, or a random assessment by a regulator that proves the existing program ineffective. 

Here are the most common reasons for compliance failures to watch out for. 

1. Leaders that don’t lead by example

Whether an organization is looking to stay compliant, be it by its own internal policies, industry-specific regulations, or the standards of something like the General Data Protection Regulation (GDPR), it is an unmistaken rule that the administration takes point. This includes the CEO and the board members too, because complete compliance is everyone’s responsibility. 

However, in many cases, a company’s administration employs an uncommitted and vague approach to compliance. This disinterest then trickles down the ladder and compliance is no longer a priority. When these key members only talk and take no ownership of the compliance program in place, they essentially create a culture that normalizes regulation’s undervaluing. Senior management’s responsibility to build and nurture a culture of compliance and failing to do is one of the most common reasons for compliance failure. 

2. Neglecting risk assessment protocols

Compliance failures that stem from neglecting risk assessment are quite common among companies that are either venturing into a new market or are employing a newer business model. This is usually the case because these entities are focused more on succeeding and keeping pace with the new market, and compliance is put on the back burner. There may be a lack of internal risk assessment and management controls or may not perform a thorough assessment of their exposure.  

Such a hurdle is especially common when companies fail to do their due diligence on international markets’ agents. The compliance regulations are vastly extensive in these scenarios, which is why third-party risk management controls have to be clearly defined preemptively. Solutions like VComply can help offer a fully integrated GRC software suite to help with risk assessment and management. 

It is a perfect fit for both companies venturing into new markets and seasoned veterans as it empowers compliance teams with the tools needed to operate optimally. With it, your company can enforce compliance controls, successfully mitigate risk at all levels and manage compliance data efficiently. 

3. Misaligned compliance and organizational goals

In any organization, there is a certain operational or business culture that goes unsaid. It may be how the company speaks to the world, what it identifies with and how it is branded. Whatever the case, these attributes inevitably tie into the grand scheme of things when defining organization goals. The compliance program should also be considered at such a stage, especially since it factors into operational success. 

This means any compliance program defined and enforced must be conducive and supportive to the organizational goals. A failure to achieve harmony between these two crucial elements makes effective compliance a herculean task. This is especially true when defining controls as misaligned goals can stifle progress or seamless operation. 

4. Misguided incentives

It is quite common for organizations to use incentives as a tool to promote desirable, optimal behavior. However, what many don’t realize is that incentivizing aspects like professional growth or monetary gain is a dangerous way to operate because it tends to encourage misconduct. Whether intentional or not, misconduct in any form violates compliance regulation and brings about a failure, which can have severe consequences. 

In fact, studies relating to the inefficacy of using incentives in any manner go back a couple of decades, and the literature still holds true. As stated by Professor Herbert H. Meyer of the psychology department at the College of Social and Behavioral Sciences in the University of South Florida, “In nearly forty years, the thinking hasn’t changed.” It is believed that all such incentives do is secure temporary compliance, which means that incentivizing a culture of compliance may not be the best approach either. Temporary compliance is a red flag that can’t exist in a modern corporate setting. 

5. Lack of a compliance culture

Compliance failure is also a product of an incorrect understanding of the compliance program’s function. If a company views its compliance program as just another mechanic or obligation among the many legal requirements in place, a gap is created. This disconnect affects education and compliance training all through the institution, increasing exposure. For this reason, it is important to instill a compliance culture. Without it, employees aren’t regularly trained or taught how to navigate real-life situations while operating within regulation. Moreover, the lack of a compliance culture also inhibits employees working in different departments from collaboratively tackling compliance challenges.

Conclusion

Besides these reasons, there may be instances where compliance failure arises simply due to a reliance on age-old technologies. compliance failure is a real and costly risk for organizations, but it can be mitigated through proactive measures. By addressing these common reasons for compliance failure, your organization can build a culture of compliance, allocate the necessary resources, and implement robust monitoring systems. This will not only help prevent compliance breaches but also foster trust with stakeholders and promote long-term success. Remember, compliance is not just a box to check; it’s a critical aspect of running a responsible and sustainable business.

Analog GRC tools aren’t equipped or efficient enough to keep pace with today’s regulatory reforms, which should be seen as a risk. Remember, compliance is considered an on-going process and your tools should also embody that attribute. The ability to evolve and proactively adapt to the regulatory reform should be a functionality that the GRC tool offers. The VComply suite is equipped to address this need and does so seamlessly to successful compliance efforts. Schedule a demo today!