In today’s business, compliance with regulatory requirements is no longer just a formality but a part of successful operations. Companies have to build compliance systems to manage risks, avoid fines, and maintain their reputation, while also preserving the trust of clients and partners. Compliance touches on many areas: taxes, data protection, anti-corruption, safety, and environmental requirements.
A well-tuned compliance system not only helps to avoid problems but also develops the company—making it financially more stable and attractive in the market. Therefore, compliance is not just an obligation but an investment in the reliability of the business and its ability to grow.
What is Compliance
Compliance is a comprehensive system of policies, procedures, controls, and roles that ensures a company operates in accordance with applicable laws, industry regulations, and its own ethical standards. In practice, this means transparent processes, traceable decisions, documented actions, regular monitoring, and readiness to confirm its “compliance” to any external or internal audit. In a mature company, Compliance is “embedded” into business processes: sales, finance, procurement, HR, IT, marketing, supply chains.
Why is this critically important for business?
Errors in the field of compliance can result in much greater losses for a business than the costs of their prevention. When a company violates regulatory requirements, it faces the risks of significant financial sanctions. These sanctions may include fines, account freezes, lawsuits, and contract terminations. As a result, the company not only loses money but also risks losing important business relationships and the ability to operate in certain markets.
Reputational losses become even more significant. When a compliance violation becomes known, it affects the perception of the company in the eyes of clients, partners, and other stakeholders. Reputational losses can lead to clients and partners reducing limits, signing new contracts on less favorable terms, or completely ceasing cooperation. In some cases, companies may even lose clients to competitors, which is difficult to recover in conditions of intense market competition.
On the other hand, a systematic approach to compliance with requirements and the implementation of compliance practices can significantly improve the financial condition of a business. Companies with an established compliance system find it easier to build trusting relationships with banks and insurance companies, which, in turn, reduces the cost of capital. The due diligence process becomes faster and less costly since all internal processes already comply with regulations and audits. This accelerates transactions and allows the company to work with more demanding but profitable market segments, such as corporate and international clients, who have high standards for compliance and transparency.
Main regulatory obligations for business
For the normal operation of a business, it is necessary to comply with numerous requirements that affect various aspects of the company’s activities. Tax legislation requires correctly classifying transactions, submitting declarations on time, documenting benefits and credits, and monitoring transfer pricing. If internal policies are not adjusted in time when tax rates change, additional charges and penalties of 3–5% of the annual corporate income tax may be incurred.
Anti-corruption requirements and anti-money laundering (AML) mean that it is necessary to verify clients (KYC procedures), monitor suspicious transactions, and report them. This applies not only to banks but also to other companies—those working with subscriptions, money transfers, or gift cards. Sanctions lists, scenarios for detecting unusual activity, and clear action plans in case something goes wrong are mandatory.
The protection of personal data under GDPR, CCPA, and LGPD obliges companies to have lawful grounds for data processing, be transparent in privacy policies, collect the minimum necessary information, and provide people with the ability to access their data, correct it, or delete it. Particular attention should be paid to marketing analytics, data transfer to other countries, and employee access management.
There are also requirements for safety and ecology: occupational safety, cybersecurity (ISO 27001 standards), environmental regulations (ISO 14001), and general safety measures — both for manufacturing companies and digital ones. Manufacturers must conduct training, medical examinations, and monitor hazardous work. Digital companies must manage vulnerabilities, protect data, and ensure uninterrupted operations. Environmental reporting (CSRD, TCFD) is becoming increasingly necessary for working in global supply chains and attracting investments.
The impact of improper compliance
Improper compliance with regulatory requirements can lead to significant financial, reputational, and operational losses for a company. For example, the average fine for data protection violations for mid-sized companies can amount to tens or hundreds of thousands of euros, in addition to mandatory corrective actions such as conducting a DPIA (Data Protection Impact Assessment) and repeated audits. In the field of taxation, there may be additional charges, penalties, and fines that can range from 10% to 30% of the violation amount. In cases of non-compliance with anti-money laundering (AML) requirements, besides fines, there is a risk of disconnection from payment networks and correspondent accounts.
Reputational risks are also significant. Public sanctions, data leaks, or scandals create a domino effect: media, social networks, supplier ratings, and banking scoring can impact the brand’s image. Even without formal penalties, the brand loses NPS (Net Promoter Score), and restoring trust may take from 12 to 24 months.
In addition, improper compliance can lead to operational losses, such as suspension of operations due to regulatory requirements, blocking of domains or applications in stores, as well as refusal by payment providers. An example could be a SaaS company with a monthly revenue of 1.2 million USD, which, facing a 30-day downtime, loses 20–30% of its customers, equivalent to losses of 3–4 million USD in LTV (lifetime value of the customer).
Tools and processes of Compliance
Compliance includes a whole set of tools and processes aimed at ensuring compliance with regulatory requirements and minimizing risks. The foundation is the development and implementation of internal policies, such as the Code of Ethics, Anti-Corruption Policy, Data Protection and Security Policy, Incident Management Policy, and others. Each policy has its owner, scope, performance metrics, and review cycle, which usually occurs annually or when regulations change.
Audits and internal control are an integral part of the compliance system. The control framework (e.g., COSO or ISO 37301) must be tied to the company’s risks, with regular checks of key processes and an independent audit conducted annually. For IT processes, this includes recovery testing, vulnerability scanning, and penetration tests, while for finance — selective tests of procedure controls.
The role of a compliance officer or compliance department is important within the framework of the Three Lines Model. This function includes the creation and maintenance of policies and methodologies, monitoring, reporting to the board of directors or audit committee, incident investigation, and employee training. The main KPIs are the percentage of training completion, incident closure time, the share of processes with an owner and risk map, as well as the implementation of the corrective action plan (CAPA).
Automation of monitoring using RegTech tools plays a key role in modern compliance processes. Sanctions screenings, KYC/KYB, beneficiary monitoring, data processing registry, policy management systems, as well as GRC platforms for risk and control management help reduce the human factor and increase efficiency. The implementation of such systems helps create event logs and provide an evidence base for audits.
The cost of compliance vs. the expenses of non-compliance
It is important to understand that the costs of compliance can be significantly lower than the potential losses from their violation. Let us consider how compliance expenses compare with potential losses in the event of an incident. The table below shows annual compliance costs and expected losses, allowing for an assessment of the economic efficiency of such investments.
| Article | Annual cost, $ | Comment |
|---|---|---|
| Team (Head of Compliance + 2 FTE) | 240 000 | Salaries, taxes, training |
| GRC/RegTech licenses | 80 000 | Sanctions screening/KYC, GRC platform |
| External audits/consulting | 60 000 | ISO 27001, DPIA, pentest |
| Staff training | 20 000 | E-courses, phishing simulations |
| Reserve for incidents/legal assistance | 30 000 | Fixed “cushion” |
| Together (Compliance TCO/year) | 430 000 | — |
| Probable violation (1 incident/3 years) | 1 800 000 | Fines/lawyers/downtime/PR |
| Lost revenue (reputation) | 1 200 000 | Customer churn, discount in tenders |
| Together (expected loss) | 3 000 000 | — |
Even in a cautious scenario, the annual “savings” from the existing Compliance exceed its costs by 5–7 times (compare 430k vs the expected average annual loss of 1M+, if an incident occurs once every 3 years).
Description of the chart: bar chart “Compliance TCO vs. Expected Loss,” where the compliance cost column is 0.43 million, and the violation column is 3.0 million; the caption emphasizes a difference of approximately 7 times.
Examples of businesses that invested in Compliance and faced consequences for non-compliance with requirements
Investments in the Compliance system help companies not only to increase their efficiency but also to avoid significant risks associated with violations of regulatory requirements. Companies that have implemented effective compliance systems can significantly improve their operational processes, reduce fines, and minimize reputational losses. At the same time, a lack of proper attention to compliance can lead to serious consequences, such as fines, loss of clients, and damage to reputation.
Examples of businesses that invested in the Compliance system and their expenses:
- Fintech from the EU (200 employees): Invested $350,000 in GRC + KYC + DLP, which allowed reducing client onboarding time from 72 to 18 hours, increasing conversion by 12%, and decreasing false AML alerts by 40%. Payback period — 14 months due to MRR growth and reduction of manual labor.
- FMCG manufacturer (1,000 employees): Implemented ISO 14001/45001 and an incident management system, which led to a 32% reduction in injuries, an 18% decrease in downtime, and a 22% reduction in insurance premiums over two years.
Examples of businesses that received fines due to negligence:
- E-commerce SMB: Ignored requests for data deletion and breach notifications. This led to a fine of €250,000, a 20% traffic decrease, and the loss of three major B2B clients.
- Electronics distributor: Made a mistake in the sanctions screening of the supplier. The company received a fine of $600,000, confiscation of the batch of goods, and a bank’s refusal of a credit line for 12 months.
Trends and Future Changes in the Field of Compliance
Legislation in recent years has undergone significant changes, especially in the areas of cybersecurity, climate risks, and ESG criteria. It is important to note that increasing attention is being paid to “operational resilience.” This includes mandatory requirements for cyber processes, incident reporting within short timeframes (no later than 72 hours), creating an evidence base for business continuity, and increased transparency in supply chains, including due diligence of suppliers based on environmental and social criteria. ESG reporting is becoming mandatory not only for large companies but also for medium-sized ones, as it is increasingly required by clients and banks.
With the growth of international cooperation and global standards such as OECD and EU, mechanisms for automatic exchange of tax information (CRS), BEPS initiatives, as well as sanctions lists are being updated. The harmonization of regulations between jurisdictions complicates “arbitrage,” but at the same time simplifies transnational business with proper compliance, thanks to unified approaches and compatible standards.
Business is already actively adapting to these changes, shifting from a “project-based” approach to a more flexible “platform-based” one. Companies are implementing unified GRC systems for managing risks and controls, creating process registries, integrating these systems with HR, ERP, and ITSM, as well as developing automated dashboards to simplify interaction with regulatory authorities. An important principle is becoming “evidence-first,” which means that every rule and its execution are recorded using a digital trail.
Compliance is a strategic investment in the reliability and scalability of a business. In the context of heightened requirements for taxes, data, cybersecurity, sanctions, and ESG, a compliance system becomes as fundamental an “infrastructure” as accounting or IT infrastructure. The costs of prevention (team, policies, GRC, training) are significantly lower than the costs of incidents involving additional charges, downtime, legal fees, crisis PR, and lost clients. Beyond protection from fines, mature Compliance accelerates deals, reduces the cost of capital, provides access to regulated markets, and enables safe experimentation with new products.
Recommendations for 3–5 years: first, transition to a compliance-by-design approach — link requirements to processes, roles, and systems with digital “traces” of execution; second, consolidate risks and controls in a GRC platform, automate monitoring and reporting; third, create a culture of accountability through regular training, incident drills, transparent metrics, and the leadership’s role as a “sponsor” of compliance; fourth, establish supplier management — contractual obligations, audits, sanctions checks, DPA/SCC; fifth, stay one step ahead of future regulations — cyber resilience, climate disclosures, supply chains, AI ethics. Such a course transforms Compliance from a formal requirement into a source of competitive advantage: the business becomes predictable for regulators and attractive to clients, investors, and partners.