Legal compliance is a crucial aspect of running a business. It involves adhering to the complex rules, policies, and procedures that regulate business practices in a particular jurisdiction. Failing to comply with these regulations can lead to severe consequences, including fines, reputational damage, and even legal action. In this article, we will explore what legal compliance entails, the importance of compliance and legal departments working together, the legal requirements of compliance, how to evaluate legal compliance, and the role of technology in ensuring legal compliance.
The Importance of Compliance and Legal Departments Working Together
Compliance and legal departments are separate but interlinked entities within an organization. While legal professionals advise on the law and best legal practices, compliance professionals develop the procedures, policies, and systems to ensure that the company operates within clearly defined parameters. In-house counsel plays a fundamental role in delivering training, conducting due diligence, providing legal guidance and analysis, and occasionally conducting internal investigations. By working closely with compliance, a legal department can ensure that the organization is operating effectively and ethically.
Legal Requirements of Compliance
Organizations have two-fold legal requirements when it comes to compliance. Firstly, they must ensure compliance with the laws and regulations set out for a business to operate in good standing within a particular jurisdiction. Secondly, they must implement sound internal compliance systems, imposed by the legal department, in accordance with rules and processes. A comprehensive legal compliance program should include seven key elements:
- Standards, policies, and procedures
- Compliance program administration
- Screening and evaluation of employees, vendors, and other agents
- Communication, education, and training on compliance issues
- Monitoring, auditing, and internal reporting systems
- Discipline for non-compliance
- Investigations and remedial measures
Evaluating Legal Compliance: Steps to Success
Measuring compliance and ensuring that a company and its entities can legally operate in every jurisdiction requires a collaborative effort from in-house counsel, company secretaries, legal operations, and compliance teams. The following seven steps provide a solid framework for evaluating legal compliance effectively:
Step 1: Know the Regulation
Research and understand the regulations that apply to your industry and jurisdiction. Make plans to fulfill the requirements of each regulation, including data protection, cybersecurity, health and safety, environmental responsibilities, financial and accounting requirements, employment law, tax law, advertising regulation, and corporate law.
Step 2: Clarify Your Reporting Duties
Different sectors, industries, and jurisdictions have varying reporting requirements. Determine the reporting obligations relevant to your organization, including any quarterly or annual reports needed for funding, ethical bodies, or industry organizations. Keep a calendar of reporting deadlines to ensure compliance.
Step 3: Take Stock of Policies
Regularly review and update legal compliance policies to ensure they are still fit for purpose. Consider changes in your business or industry and ensure your policies reflect them. Ensure that employees are aware of and working within the policies through training programs and regular spot checks.
Step 4: Check Your Records
Maintain strong record-keeping practices within the organization and across all entities. Compliance teams should have a clear understanding of what records to keep and ensure they are stored safely in an easily accessible central repository. Regularly evaluate legal compliance by monitoring and auditing record-keeping practices.
Step 5: It’s Not Just About Laws
Consider non-legal requirements when evaluating compliance. Ensure compliance with industry codes of practice, ethical guidelines, licensing requirements, funding agreements, and tenancy agreements. Cast a wide net to get a complete picture of your company’s compliance health.
Step 6: Remember Your Employees
Clearly communicate compliance requirements to all employees, from the board level downwards. Organize training and education programs to ensure that everyone understands their responsibilities regarding compliance. Regularly check in to ensure ongoing compliance.
Step 7: Schedule Regular Compliance Checks
Continuously monitor third parties associated with your organization. Check that automated filings are happening correctly, stay updated on any new regulations or deadlines, and ensure that your processes remain current and correct. Real-time data on third parties is essential for evaluating legal compliance effectively.
How to Ensure Full Legal Compliance
To achieve robust legal compliance, organizations need easy access to up-to-date, real-time data. Measuring compliance using old or incorrect data can lead to compliance failures and long-lasting financial and reputational impacts. Technology plays a crucial role in facilitating legal compliance. Compliance software can aid in various compliance tasks, such as staying on top of regulatory obligations, assessing and continuously monitoring third parties, and centralizing policy and training management.
In conclusion, legal compliance is a critical aspect of running a successful business. By understanding the legal requirements, working closely with legal departments, and following a systematic approach to evaluating compliance, organizations can mitigate risks and operate ethically within the boundaries of the law.
FAQs
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What is legal compliance?
Legal compliance is the process by which a company adheres to the rules, policies, and procedures that regulate business practices in a particular jurisdiction. It involves knowing and understanding the legislation that applies to the organization and demonstrating compliance at all times. -
Is compliance part of legal?
Compliance and legal are separate concerns but are interlinked. Compliance professionals develop procedures, policies, and systems to ensure the organization operates within legal parameters, while legal professionals advise on the law and best legal practices. -
How can technology aid in legal compliance?
Technology plays a vital role in legal compliance by providing tools and systems to facilitate compliance tasks. Compliance software can help organizations stay on top of regulatory obligations, assess and monitor third parties, and centralize policy and training management. -
Why is it important to evaluate legal compliance?
Evaluating legal compliance is essential to ensure that a company and its entities operate legally in every jurisdiction. It helps identify areas of non-compliance and take corrective measures to mitigate risks and avoid legal consequences. -
What are the key steps for evaluating legal compliance?
The key steps for evaluating legal compliance include knowing the regulations, clarifying reporting duties, reviewing and updating policies, maintaining strong record-keeping practices, considering non-legal requirements, communicating compliance responsibilities to employees, and regularly monitoring compliance through checks and audits.
Conclusion
Legal compliance is a complex yet essential aspect of running a business. By understanding the legal requirements, fostering collaboration between compliance and legal departments, following a systematic approach to evaluating compliance, and leveraging technology, organizations can ensure they operate within the boundaries of the law and mitigate risks effectively.
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