Legal compliance refers to the process in which a company adheres to the intricate regulations, policies, and procedures that govern business practices in a specific jurisdiction. It involves understanding and abiding by the legislation applicable to the organization and ensuring continuous compliance.
The Importance of Compliance and Collaboration
Ensuring Successful Compliance Programs
A comprehensive compliance process includes multiple elements such as record-keeping, implementing policies and procedures aligned with the legislation, and demonstrating that the right individuals are taking responsibility for compliance.
Failure to prioritize legal compliance can result in severe consequences for a company, including regulatory penalties, reputational damage, and even potential legal consequences for directors. However, organizations can mitigate these risks by establishing effective compliance programs.
Collaboration between Legal and Compliance Departments
The Interconnection of Compliance and Legal
Although compliance and legal are distinct, they are closely intertwined. The legal department plays a crucial role in guaranteeing, promoting, and facilitating compliance within an organization. They can achieve this by implementing effective compliance policies, educating employees, staying informed about regulations across jurisdictions, and identifying and addressing potential violations.
Legal Requirements for Compliance
Legal compliance involves two primary aspects. Firstly, it requires adherence to laws and regulations to operate legitimately within a specific jurisdiction. Secondly, it entails establishing robust internal compliance systems guided by the legal department to ensure adherence to rules and processes.
A comprehensive legal compliance program should incorporate the following essential elements, as recommended by the Department of Health and Human Services, Office of Inspector General (OIG):
- Standards, policies, and procedures
- Compliance program administration
- Screening and evaluation of employees, vendors, and agents
- Communication, education, and training regarding compliance matters
- Monitoring, auditing, and internal reporting systems
- Disciplinary actions for non-compliance
- Investigation and remedial measures
Evaluating Legal Compliance
The Distinction between Compliance and Legal
While legal professionals offer advice on the law and legal best practices, it is the compliance professionals who develop the procedures, policies, and systems to ensure an organization operates within well-defined parameters. In collaboration with compliance, the legal department plays a vital role in delivering training, conducting due diligence, providing legal guidance, and occasionally conducting internal investigations.
Steps for Evaluating Legal Compliance
Step 1: Familiarize Yourself with the Regulations
Conduct thorough research to understand the regulations applicable to your industry and jurisdiction. Determine the requirements for your organization concerning each regulation and develop plans to fulfill them. Consider various aspects such as data protection, cybersecurity, health and safety, environmental responsibilities, financial and accounting requirements, employment law, tax law, advertising regulations, and corporate law.
Step 2: Understand Your Reporting Obligations
Reporting obligations vary depending on the sector, industry, and jurisdiction in which your organization operates. Different regulations such as FATCA, CRS, SOX, and BEPS come with distinct reporting requirements. Review funding agreements, ethical bodies’ terms, and industry organization commitments to identify any necessary quarterly or annual reports. Maintain a calendar to ensure compliance with all reporting deadlines.
Step 3: Review Your Policies
Regularly assess your legal compliance policies to ensure they remain up to date and fit for purpose. Ensure they reflect any changes in your business or industry. Regularly communicate and educate employees on these policies, as their awareness and adherence are crucial for successful compliance.
Step 4: Maintain Accurate Records
Strong record-keeping is integral to evaluating legal compliance. Ensure your organization maintains comprehensive records and stores them securely in an easily accessible central repository. Additionally, strive for strong entity governance, where compliance teams gain strategic oversight of the corporate structure to anticipate the effects of regulatory changes.
Step 5: Consider Non-Legal Requirements
Beyond legal obligations, evaluate your organization’s compliance with industry codes of practice, ethical guidelines, and requirements from licenses, funding agreements, or tenancy contracts. Broadening your perspective when assessing legal compliance will present a more comprehensive view of your company’s compliance health.
Step 6: Engage Your Employees
Effective compliance requires clear communication of requirements to all employees, from the board level downwards. Organize training and educational programs, and conduct regular check-ups to ensure everyone fully understands and fulfills their compliance responsibilities.
Step 7: Regular Compliance Checks
In addition to monitoring your employees, continuously assess your organization’s compliance with third parties. Stay informed about automated filings, new deadlines, and regulatory changes. Access to real-time data on third parties enables you to make necessary adjustments as needed.
Achieving Total Legal Compliance
To evaluate compliance effectively, consider the two levels of compliance: external rules imposed by government regulations or industry bodies, and internal control systems implemented by the company to achieve compliance. Ensure easy access to up-to-date, real-time data to prevent compliance from slipping due to outdated or incorrect information, which could have long-term financial and reputational repercussions.
Technology’s Role in Ensuring Legal Compliance
Utilizing comprehensive compliance software can aid in various legal compliance tasks and enhance the credibility and defensibility of compliance programs. Such solutions help organizations stay on top of regulatory obligations, assess and monitor third parties, and centralize policy and training management.
For more information on legal compliance and its importance, visit Garrity Traina.