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What is Compliance?
The term “Compliance” refers to the set of procedures, standards and practices that organizations adopt to identify, assess and manage legal and operational risks. The main objective of Compliance is to establish effective internal mechanisms that prevent, control and respond to risk situations that may compromise the stability and continuity of the organization.
Today, compliance has evolved from a voluntary option to an essential requirement for many companies, due to the expansion of the global legal framework and the increase in regulatory rigor. This proactive and preventive approach not only ensures compliance with legal obligations, but also protects the company against sanctions and damage to its reputation.
Although the concept of Compliance is not new, its importance has grown considerably due to the tightening of sanctions and the evolution of international legislation. Current regulations highlight the need to implement preventive measures to ensure compliance, positioning Compliance as a fundamental tool in modern business management.
Compliance, also known as regulatory compliance, essentially seeks to implement programs that promote respect for laws and regulations. Its function is to prevent irregular behavior both within the organization and by its employees, thus avoiding criminal liability for the legal entity.
Compliance Objectives
The main purpose of implementing a Compliance program is to align corporate objectives with legal requirements at both national and international levels. This involves regulating the company's internal operations so that they comply with the standards and codes designed to ensure such compliance.
Compliance is a dynamic function that must constantly adapt to an expanding and increasingly complex regulatory framework. To meet these challenges, compliance management systems are structured around three fundamental pillars:
- Prevention
In this phase, the goal is to equip the company with the necessary tools to prevent the commission of crimes. Procedures are established to ensure legal compliance, integrating them into the daily behavior of employees. Key tasks in this phase include:- Identification and assessment of risks, often through compliance audits.
- Design and implementation of protocols and procedures, including a mandatory internal reporting channel.
- Guidance and support to the different areas of the company.
- Promoting an ethical tone from senior management and board members.
- Awareness and training of the entire organization.
- Development of hiring and promotion policies.
- Detection and Reporting
In this phase, potential breaches are identified and the responsible body is informed so that it can take appropriate action. This phase is crucial as the company can be held liable for offences committed due to the omission of its supervision, monitoring and control duties. The company can be exempted from liability if it demonstrates that it has implemented effective monitoring and control measures. Activities in this phase include:- Monitoring and controlling compliance with the prevention model.
- Communication of findings to the Board of Directors.
- Measurement and evaluation of the performance of the Compliance system.
- Resolution
In the event of non-compliance, corporate compliance is responsible for mitigating or compensating the impact of improper actions. To do so, the following must be done:- Establish recommendations and measures to resolve incidents, correct deficiencies and prevent their recurrence.
- Apply sanctions in accordance with the established disciplinary system.
- Review and adjust the Compliance model to correct detected errors or adapt to changes in the company or in regulations.
Because it is necessary?
The regulatory environment in which businesses operate has become increasingly complex and extensive. Intensified scrutiny by regulatory authorities and bodies has significantly increased the impact of regulations.
In the wake of recent corporate scandals and growing societal interest in business ethics, a growing number of organizations, both public and private, are adopting ethical and legal standards as an integral part of their good governance protocols. These standards are no longer optional; compliance with them has become an imperative.
Risks that need to be managed include reputational damage, severe financial penalties, loss of contracts or exclusion from public tendering and subsidy opportunities. These risks underline the importance of proactive compliance management.
Complying with legal obligations may seem like a mere administrative formality, but failing to meet the minimum requirements can lead to missing out on valuable opportunities. Thoroughly understanding the regulations that govern your business not only ensures ongoing compliance, but also allows you to capitalize on opportunities and improve your company's competitive position.
What benefits does the implementation of Compliance bring to SMEs?
- Boosting Business Growth: Ensuring compliance reinforces the trust of customers, employees and suppliers in your company. This trust increases the reputation of the organization, thus facilitating business growth and expansion of the customer base.
- Legal Risk Reduction: Compliance minimizes the risk of facing fines, penalties, labor disputes, lawsuits, or even company closure. While noncompliance can result in warnings and opportunities to correct failures, in other cases, it can lead to significant penalties. Taking proactive compliance measures helps avoid these problems and protect the legal stability of the company.
- Improved Operations and Safety: Implementing rules on discrimination and harassment contributes to a healthier work environment, which can result in increased productivity. In addition, adhering to safety regulations prevents workplace accidents, fires and emergency situations, which protects the company's profitability and operational continuity.
- Strengthening the Corporate Image: Complying with legal obligations offers the opportunity to highlight these achievements on your website and marketing materials. For example, when posting job advertisements, you can highlight that your company promotes equal opportunities. Additionally, when recruiting new employees, you can underline your commitment to safety and well-being by mentioning policies such as extended maternity and paternity leave.
How to implement Compliance in a company or SME?
To effectively develop and implement a Compliance Plan, a number of essential steps must be followed to ensure the creation of a robust and effective system. These steps include:
- Design of Protocols and Strategies
- Establishment of Protocols: Create detailed procedures for the identification, prevention and management of legal and operational risks.
- Strategy Development: Define clear strategies for risk detection and implementation of preventive measures.
- Review and Update: Conduct periodic reviews of the plan to ensure its effectiveness and adapt it to new regulations and emerging situations.
- Assignment of Responsibilities
- Appointment of a Compliance Officer: Designate a professional or team in charge of ensuring regulatory compliance and supervising the Compliance Plan.
- Establishment of Communication Channels: Implement internal communication and reporting channels to facilitate the prevention and reporting of potential crimes or breaches.
- Formalization of Corporate Governance
- Corporate Governance Structure: Clearly define the corporate governance structure and ensure that all members of the organization understand and adhere to the Compliance policy.
- Policy Communication: Ensure that Compliance policies and procedures are known by all levels of the company, from senior management to operational staff.
- Consideration of External Advice
- Hiring of Experts: If the company lacks the necessary infrastructure or personnel, it is advisable to hire an external consultancy with experience in Compliance. These experts can provide the necessary support to implement and maintain an effective compliance system.
Types of Compliance in the Company
When implementing Compliance in a company, two main types of models can be distinguished: generic and specific. Each addresses different aspects of regulatory compliance depending on the context and needs of the organization.
- Generic Models
- Compliance Superstructure Model: Based on the global regulatory framework, this model follows the ISO 19600 standard, which provides guidelines and good practices for establishing a comprehensive Compliance function in any company or organization. This approach ensures that the Compliance system covers the basic principles of governance and risk management, applicable to any sector.
- Specific Models
Specific models focus on specific legal areas, tailored to the particular needs of each organization. These include:- Criminal Compliance: Focused on crime prevention and compliance with criminal law. Includes measures to prevent illegal activities and manage criminal risks.
- Corporate Compliance: Addresses compliance with general and specific regulations affecting corporate structure and operations, such as corporate laws and internal regulations.
- Environmental Compliance: It focuses on compliance with environmental regulations and management of environmental impacts, promoting sustainable and environmentally friendly practices.
- Occupational Risk Prevention Compliance: Aimed at complying with occupational health and safety legislation, ensuring a safe and healthy work environment.
- Anti-Corruption Compliance: Focused on preventing acts of corruption and bribery, promoting transparency and integrity in all business transactions.
- Public Health Compliance: It focuses on complying with public health regulations, ensuring that business operations do not put the health of the community at risk.
- Fiscal and Tax Compliance: Addresses compliance with fiscal and tax obligations, ensuring that the company complies with tax and tax laws.
Compliance and Reportable Schemes
What are Reportable Schemes?
The reportable schemes These are tax or financial structures that must be reported to the competent authorities due to their potential to evade taxes or abuse tax rules. These schemes are often complex and may involve tactics designed to exploit legal loopholes or avoid tax obligations. The obligation to report these schemes helps authorities identify practices that could be harmful to the tax system and take the necessary measures to counteract them.
The Relationship between Compliance and Reportable Schemes
The intersection between compliance and reportable schemes lies in the commitment of organizations to ethical and compliant conduct. Here are two key ways in which they are related:
Prevention and Detection: A robust compliance program includes mechanisms for detecting and reporting tax or financial schemes that may be considered evasive. By integrating specific procedures to identify these schemes within the compliance framework, organizations not only ensure compliance with the law, but also act proactively to avoid future problems.
Regulatory Compliance: Reportable scheme regulations often require firms and their advisors to report certain structures or transactions. Incorporating these requirements into the compliance program ensures that the firm is not only aware of legal obligations, but also has the mechanisms in place to properly comply with them. This involves having clear processes for scheme assessment, staff training, and reporting to the relevant authorities.
Integrating reportable schemes into a company’s compliance framework strengthens the organization’s ability to operate within legal and ethical boundaries. It is not just about complying with laws, but about taking a proactive stance in managing risks and promoting transparent and responsible business practices. In an increasingly complex regulatory environment, this relationship not only protects the company, but also reinforces its commitment to integrity and long-term sustainability.
