The Importance of Compliance for Small and Medium-Size Businesses: What You Need to Know

 Wednesday 24 May, 2023
The Importance of Compliance for SMBs

Navigating compliance requirements can be complex because there are so many of them, and there is a good chance that at least one set of standards applies to you. Standards can be for specific sectors, like The Health Insurance Portability and Accountability Act (HIPAA) for healthcare, or may apply more generally to organizations across industries, like the General Data Protection Regulation (GDPR).

While it may be confusing trying to work out which standards apply to your organization during a compliance audit, one thing is clear. Compliance doesn't apply only to large corporations; it applies even to small and medium-size businesses.

So, let's try and understand what regulatory compliance is, how it's important for your business and the important role that IT plays in the management and maintenance of the various compliance standards.

What is regulatory compliance?

Regulatory compliance is the process of adhering to regulatory standards and requirements so you follow best practices and comply with the laws and regulations required to operate in specific sectors and/or geographies. It helps you follow the regulations for trade and defined best practices and perform expected actions in case of breaches.

Compliance regulations usually cover how data is handled and stored, how it's used, how easy it's to delete personal data on request, what protections are in place, etc.

A lot of regulatory compliance is about record keeping. It's the job of your IT team to be able to deliver proof of compliance and appropriate behavior in case of audits or breaches. This can be a challenge for IT teams of small and medium-size businesses, especially when they try to do it manually because the process can be time-consuming and costly.

However, most compliance processes, like documentation and reporting, can now be automated with solutions like Compliance Manager GRC. They enable you to determine what you need to document during compliance preparation. You can effortlessly, without increasing your headcount, deliver proof of compliance in the case of a breach or when needed.

Compliance Manager GRC also helps ensure you are meeting all the requirements for specific standards. Regulatory standards often have similar requirements and can be confusing. Compliance Manager GRC helps bring clarity to your compliance efforts and prevent duplication of work. The best part? You don't have to break the bank to implement this solution.

Why is regulatory compliance important?

Regulatory compliance is important because it helps you:

  • Follow best practices for handling and managing data, cybersecurity, etc.
  • Fulfill legal obligations.
  • Build customer trust and loyalty.
  • Protect your organization’s reputation.
  • Minimize reputational damage in the event of a breach.
  • Avoid hefty fines for non-compliance.

During a data loss incident, it's the duty of IT to show evidence that you were fully compliant before the attack and provide the data needed to respond according to the standard. In the event of an audit, you must be able to easily show compliance and provide evidence that you can respond quickly and appropriately to any potential breach. The only way to do this is by being compliant and documenting evidence of compliance in the form of IT policies and procedures, action plans, risk assessment reports, activity reports, etc.

If your organization is found to be non-compliant, it risks facing severe financial and reputational damage.

The penalty for not complying with the GDPR is 4% of your company's turnover or €20 million, whichever is higher.

Compliance standards you should be aware of

Let's look at some of the most recognized regulations in the world:

  • General Data Protection Regulation (GDPR): It’s one of the strictest compliance standards in the world and applies to any company from within or outside the European Union (EU) that collects and processes personal data — any piece of information that relates to an identifiable person — from EU citizens. The penalty for not complying with GDPR is 4% of your turnover or €20 million, whichever is higher. It is also a comprehensive set of regulations and has inspired similar legislation in other jurisdictions (e.g., the California Consumer Privacy Act in California and the Brazilian General Data Protection Law). Complying with GDPR can be a daunting task for small and medium-size businesses. However, the EU recognizes this and has created dedicated resources to help your organization be GDPR-compliant.
  • Health Insurance Portability and Accountability Act (HIPAA): HIPAA is a federal law that mandated the need for national standards in the U.S. to protect sensitive patient information. It imposes the privacy rule, which mandates that sensitive patient health information may not be disclosed without the patient’s consent or knowledge, on organizations like hospitals, health insurance companies, etc. 
  • Payment Card Industry Data Security Standard (PCI DSS): The PCI DSS is a set of security standards that applies to all companies that handle credit card information. It is administered by the Payment Card Industry Security Standards Council (PCI SSC), which was established in 2006 to evolve security standards and enhance industry participation in the creation of secure payment channels for businesses.
  • Sarbanes-Oxley Act (SOX): SOX is a U.S. law that regulates financial reporting and disclosure for all publicly traded companies, including foreign companies that are publicly traded and do business in the U.S. It outlines standards for corporate governance, risk assessment and management, auditing and financial reporting of public companies, and includes provisions intended to deter and punish corporate accounting fraud and corruption.
  • Cybersecurity Information Sharing Act (CISA): CISA is a U.S. law that encourages companies to monitor and implement defensive measures on their own information systems and then share critical “cyberthreat indicators” and “defensive measures” with the federal, state and local governments and private companies to combat cyberthreats and create a more resilient cybersecurity infrastructure for the future.
  • Federal Risk and Authorization Management Program (FedRAMP): FedRAMP is a U.S. government program that sets security standards for cloud service providers that work with federal agencies. It was established in 2011 to provide companies with a risk-based approach to adopting and using cloud services.
  • ISO 27001: ISO 27001 is a global information security standard that provides a framework for establishing, implementing, maintaining and continually improving an information security management system (ISMS). It helps companies be aware of the latest threats and take action to address their vulnerabilities in a bid to improve risk assessment and management, cyber resilience and operational excellence. 

This is not an exhaustive list. Depending on the industry you're in, where you're located and the type of data you handle (personally identifiable information or PII, financial information, protected health information, etc.), there may be other regulations that apply to you too. 

Achieving regulatory compliance

For small and medium-size businesses aiming to achieve regulatory compliance, it's important to prepare well and take this up as a challenge. You could approach it like any other project and adopt the following steps of compliance preparation:

  1. Identify standards that apply to your organization based on your industry, location and the type of data you handle. Remember, you have no choice in compliance; you’re expected to adhere to certain standards. By identifying the standards that apply to your organization, you can efficiently focus your time, energy and resources in your bid to be compliant.
  2. Assess risks in your IT systems and processes and develop and implement a plan to address vulnerabilities so you can meet compliance standards. Implement security controls like firewalls, encryption, etc., to keep your data and systems safe from unauthorized access and breaches.
  3. Put policies and procedures in place that outline your approach to compliance in a language that’s easy to understand for all employees. Review and update these policies periodically to incorporate changes in regulations and standards.
  4. Get your employees on board with training initiatives that are designed to increase their awareness of compliance policies and procedures and explain the role they play in maintaining compliance. This should be an ongoing process that keeps employees engaged and informed of all changes. For some standards, especially for the more security-focused ones, staff training is a requirement.
  5. Monitor and test your systems continuously to identify and mitigate potential dangers.
  6. Get expert advice from IT and legal professionals along the way to better understand compliance requirements and ensure you’re fully compliant with all the standards that apply to you.

Navigating compliance standards

Regulatory compliance helps follow best practices that keep your business and clients safe. It's important for small and medium-size businesses to avoid paying hefty fines for non-compliance and protect their reputation.

Although regulatory compliance can seem difficult and complex, there are solutions like Compliance Manager GRC that help identify and meet compliance requirements without making huge investments.

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