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Blog > Impact of Non-compliance on Organizations

Impact of Non-compliance on Organizations

VComply Editorial Team
March 2, 2024
2 minutes

In general, compliance refers to all the laws, regulations, and policies that an organization should confirm. When in compliance, the organization, employees, and third-party vendors will behave according to the laws and standards of the regulatory and industry bodies. The essence is that compliance helps organizations to act responsibly and obey regulations related to labor, work safety, finance, operations, and accounting standards.

As regulatory requirements vary based on the industry sector you operate in, you should know the regulations that apply to your industry. These could include Federal Information Processing Standards, General Data Protection Regulation (GDPR),  Payment Card Industry Data Security Standard (PCI-DSS), Health Insurance Portability and Accountability Act (HIPAA),  Occupational Safety and Health Administration (OSHA) Sarbanes-Oxley Act (SOX), etc. that requires companies to make controls to comply with procedures and standards.

Unfortunately, it is not that easy to remain complaint. Regulatory landscape keeps changing, regulatory bodies are implementing and enforcing more and more regulations. Organizations need to be agile and stay up to date on the changing regulations. Otherwise, the consequence of non-compliance can be huge. 


The cost of non-compliance can be manifested in the form of hefty fines. Regulatory fines might erode big companies’ profits significantly whereas it can cause stiffer hits to smaller ones even making them wiped out of business. For external requirements, state authorities impose penalties that ranges from minuscule amounts to very serious consequences. The US financial institutions alone paid a huge sum as fine till now. For example, in 2020 alone, several banks paid major fines amounting to $11.39 billion. U.S. banks Goldman Sachs, Wells Fargo, and JP Morgan Chase paid upwards of $7.50 billion of this total, according to Finbold’s ‘Bank Fines 2020’ report. Besides, lawsuits and settlements can easily cost you millions of dollars. 

Reputational damage 

The reputational damage of non-compliance is immense. A non-compliance issue can put a company in a bad light. The brand value and reputation can take a serious hit based on the severity of non-compliance. This can also lead to further loss of opportunities. According to a survey conducted by Deloitte, 87% of the executives they surveyed reported reputation risk as much more important than other strategic risks their company is facing. 


Noncompliance might demand for additional audits to uncover the reason for non-compliance. Conducting these audits can be time-consuming and require a lot of efforts.

Operational impacts

Operationally, non-compliance can disrupt business processes and lead to inefficiencies. For example, non-compliance with health and safety regulations can cause workplace accidents, leading to loss of productivity and feeling of restlessness among employess, and affect operations negatively. Additionally, non-compliance can trigger regulatory investigations and audits, diverting resources and attention from core business activities. This disruption can result in project delays, reduced innovation, and lower overall performance.

Loss of Market Access

Non-compliance can result in the loss of market access. Regulatory authorities may revoke licenses, certifications, or permits necessary for operating in certain markets. For example, non-compliance with environmental regulations can lead to the suspension or revocation of permits required for manufacturing processes. Losing access to key markets can significantly reduce revenue and growth opportunities.

Legal actions and imprisonment 

In exceptional cases of non-compliance, compliance officers have personally faced regulatory and government enforcement action. Ever since the financial crash of 2007-2008, a broader increase in scrutiny by regulators and government agencies about the role and responsibilities of compliance officers have been surfaced. In addition to penalizing the organization, these bodies are holding individuals accountable for their wrongdoing. This is a warning alarm for compliance officers who have been previous insulated from their wrong doings.


Legal actions

Company shut down

Failure to comply is considered as illegal and the governing bodies may take any relevant action on the organization. Governing authorities may sometimes order companies to shut down or completely dissolve them in case of serious non-compliance issues. 

The moral is that the regulatory compliance is not something you want to gamble with as it can wipe out your customer base and shareholder value. One thing about these compliance challenges is that juggling between multiple compliance regimes, such as PCI DSS and GDPR or HIPAA and CIJS, is hard. It becomes even more difficult if you do not have a way to oversee compliance on an organization-level. Poor communication, training, monitoring, and data management can hinder compliance. Being stuck in silos with spreadsheets and binders fails to provide the big picture and that is the gap VComply, an integrated GRC solution fills. 

With it you can analyze your organization’s performance with graphs, delegate responsibilities to increase accountability, get real time alerts, obtain automated reports and much more. So, as you tackle the compliance challenges 2021 has in store, commit to a smarter way of running your organization!