What is regulatory compliance?

Compliance, product compliance, product conformity, regulatory – many different buzzwords are currently in circulation and leave a bitter aftertaste for some. But what do these different terms mean? In this EFS RegCom Academy article, we look at the basics of regulatory compliance.

What is “regulatory compliance”?

Compliance means “conformity with laws, rules, norms and standards”. Put simply, it is the obligation of companies to comply with laws and rights. Compliance with these regulations is often seen by companies as a burden, as it does not represent a value-adding function within the company. However, non-compliance can be costly and risky.

What does “compliance” include?

The term “compliance” originally comes from the food and finance industries (read more about the history of compliance here). However, it now extends across many different areas. The most common terms currently used are as follows:

• Product Compliance: This field is also known as “product conformity” and relates to the process of ensuring that a product meets all relevant regulations, standards and requirements. These regulations can vary depending on the industry, product type and place of sale.
• Material Compliance: It refers to compliance with regulations and standards relating specifically to substances and chemicals. The aim of the regulations is to achieve high standards of environmental compatibility and safety. Here, the term “chemical compliance” is also included.
• Environmental Compliance: This new field includes all cross-industry regulations such as extended producer responsibility (EPR), product recycling, packaging requirements and environmental labeling.
• International Trade Compliance: These are regulations that govern the import and export of goods and services across international borders. Examples include free trade agreements (FTAs), customs duties, rules of origin (ROOs) and conflict minerals.
• Corporate Compliance: This includes adherence to regulations that are relevant to the (administrative) business activities of a company. The aim is to ensure the ethical conduct of companies, minimize general risks and maintain the trust of all stakeholders.
• Automotive Compliance: Some industries have a large number of regulations and standards that apply only to them. One example of this is the automotive industry, which has to comply with many national and international regulations.

Why is compliance with regulations important?

Compliance with legal regulations is important for several reasons:

• Legal requirements: Failure to comply with regulations can lead to legal consequences, such as fines, penalties or even criminal charges.
• Reputation and trust: The reputation of the company’s brand can be damaged and lead to a loss of trust among customers.
• Financial impact: Financial losses, e.g. in the form of fines, penalties or recalls can have a major impact on companies.
• Competitive advantage: Compliance with regulations can give companies a competitive advantage by demonstrating their commitment to ethical and responsible practices.

What does this mean in a nutshell?

Regulatory compliance is a very comprehensive term for many areas. These fields regulate various aspects such as the product itself, international trade, environmental and safety factors, as well as internal company risks.

Non-compliance with regulations poses considerable risks for the company. These can include legal consequences, damage to reputation, financial losses and reduced competitive advantage. By implementing compliance measures, companies fulfill their legal obligations and create trust with their customers and business partners.