For any business, the state of your finances is critical to the stability and health of the company. From improving your stakeholders’ confidence to ensuring ethical business practices are in place, financial compliance is necessary to focus your attention on this year.
Thomson Reuters found that 80% of corporate risk and compliance professionals agreed that their organizations now view risk and compliance as valuable business advisory functions.
What is it to be financially compliant? How does your business achieve this, and how do you improve upon your current efforts? This guide will tell you everything you need to know about financial compliance, the guidelines your business should be following, and its growth within business in general.
Whether you’re growing your company or browsing businesses for sale to expand your portfolio, a strong grasp of financial compliance is essential for long-term success.
By the end of the guide, you should have a better understanding of where your business stands and what it may benefit from when it comes to improving financial compliance.
Table of contents:
- What is financial compliance?
- The guidelines for financial compliance
- X ways financial compliance is growing in business
What Is Financial Compliance?
Financial compliance refers to adhering to a set of rules and regulations that offer transparency and accountability. It’s not just in relation to external regulatory frameworks from governing bodies but also internal controls that are implemented by the business itself.
From safeguarding the interests of investors and stakeholders to ensuring transparency throughout your internal financial processes for customers. Financial compliance is essential for businesses that want to grow their company from strength to strength.
The Guidelines For Financial Compliance
There are a number of guidelines that need to be followed when it comes to financial compliance. From record-keeping to data protection measures, the more you are able to tick off, the better your business becomes at being financially compliant.
Conduct Risk Assessments
Organizations should be looking to engage with regular and detailed risk assessments across all aspects of business, including their finances. There will be potential vulnerabilities within business financial operations that are useful to identify.
By identifying such vulnerabilities, measures are then implemented to help mitigate them as best as possible. A stronger resilience against financial hardships is something that any business would like to avoid.
Record-Keeping
Organizations need to be able to maintain records accurately and with detail. Having all financial transactions maintained properly ensures transparency and is useful for auditing purposes. When it comes to robust compliance processes, record-keeping should be a core part of it.
Internal Controls
Internally, how you monitor financial activities and prevent fraud is useful, especially in a world where online fraud is rife. One report found that people have experienced losing $100 billion to scams in 2023. That number has likely grown in recent years as methods of cyber scams have developed and become more refined.
Making use of tools and software that help bolster compliance is worthwhile. For example, adding AML verification to your processes will help you verify account holders for financial transactions. Something as simple as validating the name, date of birth, and address of the account holder helps to reduce the chances of a financial scam.
Data Protection Measures
Data is a valuable asset for any business nowadays, and as such, it holds a higher value that needs protection.
Data protection is not just a regulatory requirement nowadays but also an essential part of building a customer’s trust. Complying with protection laws and regulations will help to prevent cyber criminals from gaining unauthorized access to customer or client information.
By implementing secure data management software and regularly reviewing privacy laws, your business will improve its compliance across the board—not just financially.
3 Ways Financial Compliance Is Growing In Business
Financial compliance is growing in importance due to the increasing number of regulatory laws in place and evolving standards that are expected not just from governing bodies but also from your own customers.
With that being said, here are three ways that financial compliance is growing in business.
Increasing Regulatory Scrutiny And Standards
A lot of governments and regulatory bodies that are responsible for compliance are enacting and enforcing stricter financial regulations than before. This is being done to help combat financial crimes that are being carried out online and offline.
By increasing regulatory standards and scrutinizing the security of current practices, businesses will do more to protect their consumers, especially where fines and penalties are incurred. For example, the introduction of GDPR led to fines being dished out to businesses that didn’t make the effort to comply with these new data privacy laws.
There’s also more happening across the globe and being more strict with regulations keeps every country consistent in its efforts to provide financial compliance practices.
2. Risk Management And Mitigation Of Risks
In order to carry out effective financial compliance, risk management helps to identify, assess, and mitigate the risks that come with non-compliance. This both avoids legal and reputational damage – as well as financial harm, of course.
From establishing policies to conducting regular audits and training employees, risk management has become an important part of making sure businesses stay compliant.
There are a number of key components that contribute to effective risk management practices. Identifying applicable regulations that are relevant to your business is the first step in the process. From there, risks are evaluated, and then controls are implemented to mitigate any potential risks.
Once controls are put in place, these are monitored, and employees are trained to ensure compliance is understood.
3. Technological Advancements
A number of technological advancements have been achieved, thus revolutionizing the way financial compliance is operated. For example, the use of automation and machine learning has helped improve the efficiency with which tasks are completed, whether that’s fraud detection, customer verification, or risk assessments, all done through automation.
AI helps analyze historical data and trends within that to help anticipate what compliance risks might present themselves. That way, businesses are able to put preventative measures in place.
Blockchain technology and cloud computing have also proved to be effective for enhancing security in financial transactions and offering scale for those who want to improve their infrastructure or deploy new services.
How Financial Compliance Benefits Your Business
If you need more reasons as to why you should invest your time and money into financial compliance, there are plenty of ways it benefits the business. Beyond just the legal obligation to do so, here are some key benefits that are helpful to leverage for your business.
Offers Legal And Regulatory Protection
With financial compliance, you shield your business from a variety of legal headaches and hefty fines or penalties for not adhering to the regulations in place. It also helps to build trust between the business and the regulatory bodies, which have everyone’s best interests in mind.
Not having a run-in with the law is something that every business would appreciate. That’s why it’s necessary to adhere to the financial compliance rules in place, even if it’s a bit of a hassle to begin with.
Provides Investor Confidence
A commitment to financial compliance does wonders for relationships with investors and stakeholders alike. Anyone who invests their money does so in the hope that everything the business does is legitimate and by the book.
With rigorous compliance standards in place, it does well to improve the relationship and trust you want to build with your investors. It also benefits your business in other ways, like possibly leading to further investment and improving reputation amongst other prospective investors on the market.
Protection For Consumers
Your consumers are the people that you want to look after and protect the most, especially when it comes to handling their data. Financial compliance offers a commitment to fair treatment and protection for all of the consumers to whom you offer your products and services.
With compliance, you have transparency, and just like your investors or stakeholders, that transparency is great for building trust. There’s often a worry when it comes to customer or client data and how well-protected it is within a business. As part of business compliance, financial compliance helps to look after what’s most important – their money!
Risk Mitigation
As mentioned above, being able to mitigate risk in any area of your business is important, and that includes your financial operations. Adherence to regulations and standards helps an organization identify any potential risks, ultimately reducing or eradicating them completely.
From the risk of financial fraud, money laundering, and more, regulations help mitigate risk and put in place the necessary safeguards for your customers and the business in general.
Reputation Management
Nowadays, how you’re rated in society is influential to your success as a business. As part of your upholding of financial compliance from your end, you’re likely to gain popularity and improve your reputational standing, too.
Having a glowing reputation is invaluable to your business, especially if you’ve come under prior scrutiny.
Make Sure Your Business Is Financially Compliant This Year
As a business, it pays to spend your time and energy on being financially compliant. Adhering to those regulations will ensure that legal protection is provided and trust is fostered by both your consumers and investors moving forward.
