2023 was a watershed year for compliance professionals. Data breaches, regulatory changes, and increased stakeholder scrutiny forced companies to reevaluate their compliance strategies and practices.
According to a survey conducted by Thomson Reuters, 76% of compliance professionals say that the intensity of regulatory change will increase over the next years. So, what can we expect in the future of compliance? What new challenges and opportunities will arise in the next decade?
The Evolution of Compliance (A Look Back at the Last Decade)
Before we dive into the future, let’s quickly reflect on the past.
In the last decade, compliance has evolved from a reactive, checklist-based approach to a more proactive and risk-based approach.
The financial crisis 2008 was a major catalyst for this shift, as regulators and stakeholders demanded greater accountability from companies. Dodd-Frank and MiFID II were introduced, bringing about stricter compliance requirements and greater enforcement actions.
The rise of digitalization, cross-border transactions, and a remote workforce added new layers of complexity to compliance. Customer rights and data privacy regulations such as GDPR and CCPA put more pressure on companies to protect sensitive information.
As a result, compliance departments grew in size and importance, with a greater focus on risk management, automation, and technology. C-suite executives and board directors are paying closer attention to compliance and its impact on the company’s reputation and bottom line.
9 Predictions for the Future of Compliance
Now, let’s look ahead and explore some key predictions for the future of compliance in the next decade.
1. Increased Focus on Data Privacy Regulations
Data privacy is a growing concern for both consumers and companies. Most people are becoming more aware of how their personal data is being collected, used, and shared by companies. 63% of users say they do not believe most companies are transparent about their data usage, and 48% have stopped doing business with a company due to privacy concerns.
According to the Pew Research Center, 62% of Americans are not confident they can go about their daily lives without companies collecting data about them.
In response to these concerns, governments have strengthened existing data protection laws. Google’s €50 million fine under GDPR in January 2019 warned companies that non-compliance with data privacy regulations could have significant financial consequences.
As data breaches and privacy violations continue to make headlines, we can expect more stringent enforcement and new regulations.
2. Automation and AI in Compliance Processes
The increased regulatory complexities and data volumes have made it challenging for compliance teams to keep up manually. Automation of compliance processes is becoming a necessity, and we can expect to see more widespread adoption in the coming years.
NLP (natural language processing) and AI (artificial intelligence) technologies automate risk assessment, monitoring, and reporting tasks. These techniques can help identify suspicious activities, conduct potential fraud investigations, and monitor for compliance breaches more efficiently and accurately than manual efforts.
In addition to improving efficiency and accuracy, automation can free up compliance professionals’ time to focus on more critical tasks. AI and automation in compliance processes are expected to increase significantly in the next decade, reducing compliance costs and improving overall effectiveness.
3. Heightened Scrutiny on Corporate Culture
In the past, compliance was often seen as a tick-box exercise, with little emphasis on corporate culture and values. The Watergate scandal in the 1970s and Enron’s collapse in the early 2000s were examples of how unethical corporate cultures can lead to significant compliance failures.
Today, regulators and stakeholders recognize corporate culture’s critical role in fostering compliance. As a result, we can expect to see a greater focus on ethical and values-based approaches to compliance in the future.
To maintain a strong compliance culture, companies will need to implement measures that promote transparency, accountability, and ethical behavior.
4. Integration of ESG Factors in Compliance
Environmental, Social, and Governance (ESG) factors are increasingly at the forefront of business operations. Consumers, investors, and regulators are paying more attention to how companies operate regarding sustainability, social responsibility, and corporate governance.
As ESG compliance becomes more critical, we can expect to see a greater integration of these factors into compliance guidelines. Companies will need to consider the potential impact on their reputation and brand image when making compliance decisions related to ESG issues. Failure to comply with ESG standards could result in financial and reputational damage, making it a crucial consideration for future compliance efforts.
Integrating ESG factors into compliance will be essential for meeting public expectations and promoting sustainable business practices.
5. Use of Blockchain Technology
Blockchain technology, known for its secure and transparent record-keeping capabilities, is already making its mark in compliance. Its use in cryptocurrency transactions has brought attention to its potential compliance applications.
Blockchain can create immutable records of compliance activities, reducing the risk of fraud and manipulation. The technology can also facilitate secure information sharing between regulators and businesses, improving compliance monitoring and reporting.
According to Forbes, 86% of financial services executives believe blockchain technology will achieve mainstream adoption in the next years. As its adoption grows, we expect to see more blockchain applications in compliance processes.
6. Cybersecurity as a Key Compliance Concern
In the first half of this year, we have witnessed high-profile cyberattacks and data breaches that have impacted government agencies and major corporations. Ivanti VPNs and Microsoft executive accounts were compromised, highlighting the growing threat of cyber attacks.
The average cost of a data breach has also been increasing, reaching an all-time high of 4.45 million USD, according to IBM’s Cost of Data Breach report. The sensitive nature of personal and financial data handled by businesses makes them attractive targets for cybercriminals.
Regulatory bodies are including cybersecurity measures in compliance regulations to address this concern. Organizations will need to prioritize regular audits and updates to ensure they remain compliant with evolving cyber threats. Failure to do so could result in severe financial and reputational damage.
7. Disclosure and Transparency as Key Compliance Principles
A growing trend in recent years has been the push for increased transparency and accountability in business operations. This has resulted in the implementation of whistleblower protection measures and the emphasis on the complete and accurate disclosure of information to stakeholders.
Companies prioritizing transparency and disclosure are better positioned to build trust with stakeholders, maintain a positive reputation, and avoid compliance failures. A lack of transparency and disclosure can lead to legal and regulatory consequences and damage to public perception. Incorporating these principles into compliance processes will continue to be a key focus in the future.
8. SaaS Applications Compliance Challenges
In 1999, Salesforce revolutionized the tech industry by introducing Software-as-a-Service (SaaS) applications. Today, SaaS applications have become a staple in business operations. Many companies rely on cloud-based services for their day-to-day operations, from customer relationship management to human resources.
However, SaaS applications also bring about unique challenges in compliance with data protection laws. With data stored in the cloud, businesses must ensure that they comply with regulations such as GDPR and CCPA.
In response to these challenges, we expect to see the introduction of new compliance solutions specifically for SaaS applications. Integrating compliance measures into these cloud-based services will become more critical as their usage grows.
9. Sustainability and Compliance
Sustainability is now a top priority for consumers, investors, and regulators. As such, businesses are increasingly expected to address their environmental impact and implement sustainable practices.
Businesses will need to incorporate sustainability measures into their compliance efforts to stay compliant in the future. Integrating environmental, social, and governance (ESG) factors into compliance will be essential for meeting public expectations. Furthermore, regulators will likely introduce new regulations and requirements centered around sustainability in the coming years.
Companies that proactively address sustainability in their compliance processes will meet regulatory standards and attract environmentally conscious stakeholders. You can expect to see the sustainability trend continue as society becomes more environmentally aware.
To Wrap Up
Compliance is no longer just about following rules and regulations to avoid penalties. It has become a key factor in maintaining public trust, promoting sustainable business practices, and mitigating financial and reputational risks.
As technology advances and societal expectations shift, the need for effective compliance measures will only grow. Companies that prioritize compliance will be best positioned to succeed in the future.
With a strong commitment to compliance, businesses can avoid penalties and gain a competitive advantage. So, companies should prioritize building a robust and comprehensive compliance program to ensure long-term success.