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What Is Financial Compliance? The Importance of Financial Compliance for Businesses

Financial compliance is an essential part of running a successful business, regardless of industry. Ensuring your organization stays in compliance with the rules and laws established by various regulatory bodies shields your business from monetary and legal consequences and fosters trust with customers, investors, and other stakeholders.

While critically important, maintaining financial compliance can be a challenge for many companies. Get help from expert accounting or financial compliance professionals to make sure your business is up to date on relevant regulations.

What Is Financial Compliance?

Financial compliance is the enforcement and regulation of a broad spectrum of regulatory procedures that companies must follow. These rules and laws are established by the government and other regulatory bodies, and organizations across the entire financial spectrum—from investment banking to private lenders—are responsible for maintaining financial compliance.

Examples of financial compliance regulations include the following:

Know Your Client

A standard practice that ensures investment advisors and financial professionals can identify the clients they are working with.

Payment Card Industry Data Security Standard (PCI DSS)

A set of financial data security guidelines regulating credit and debit account data.

General Data Protection Regulation

A European law that governs how companies collect and store customer data; many companies in the United States choose to follow GDPR.

These laws and regulations vary internationally. In the United States, financial compliance is regulated by several different bodies covering all aspects of the financial system, the Federal Reserve, the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Trade Commission (FTC).

The Importance of Financial Compliance

It is important for companies to ensure compliance with financial regulations and reporting requirements because failure to adhere to these standards can lead to fines, penalties, legal repercussions, and reputational damage. Additionally, financial compliance rules help protect the sensitive financial information of customers and clients as well as prevent the theft of assets.

By operating within the bounds defined by federal regulators and implementing best practices for maintaining compliance, companies can maintain a strong reputation for compliance and avoid the risks involved with a breach of non-compliance.

4 Long-Term Benefits of Financial Compliance for Businesses

Organizations that stay compliant with financial rules and regulations can experience a range of long-term benefits.

1. Improve Operational Efficiency

Financial compliance processes are efficient and streamlined. Companies adhering to these standards are required to implement procedures and processes that automatically improve operational efficiency.

2. Avoid Fees & Penalties

Failing to maintain financial compliance standards can lead to steep penalties, significant fees, and other serious consequences. However, complying with federal regulators ensures that an organization will avoid the fees, penalties, legal repercussions, and other disruptions that follow non-compliance.

3. Attract More Investors

Investors and lenders are more likely to do business with organizations that maintain financial compliance because it is a sign that the company is run efficiently, ethically, and honestly—and increased investor interest can lead to new opportunities for businesses.

4. Establish Reputational Trust

Financial compliance ensures a company is following the rules and legislation established by governing bodies and, if applicable, international regulators. This compliance builds reputational trust among clients, customers, vendors, and others—they can be confident their data and financial information will remain safeguarded and, therefore, are able to trust in the organization.

How to Ensure Your Business Maintains Financial Compliance

Maintaining financial compliance is an ongoing process. Follow these tips to stay prepared to follow changing regulations and set your business up for success.

Leverage Accounting Software

Today, most business accounting software programs include and automate financial compliance monitoring and workflows. Leveraging accounting software that supports financial compliance standards allows for real-time monitoring of financial data, maintains accurate financial records, and is designed to identify instances of potential compliance issues.

Establish a Financial Compliance Framework

Establish new procedures and policies that are aligned with financial compliance best practices. This financial compliance framework may include a schedule for conducting audits, processes involving the use of accounting technology, procedures for staying up to date with regulations, and information about how to create a culture of compliance across the organization.

Maintain Proper Financial Records

Proper recordkeeping is one of the most important parts of demonstrating financial compliance. Ensure financial documentation is well-organized, accurate, and up to date at all times to prove compliance as needed.

Employ a Dedicated Compliance Professional (or Team)

Maintaining financial compliance across an organization can be complicated. Employ a dedicated compliance professional—or team of financial compliance professionals—to provide guidance and expertise on how to navigate federal rules and regulations.

Outsource Financial Compliance

Instead of hiring an internal team, consider outsourcing financial compliance. Look for an outsourced chief financial officer (CFO), experienced accountant, or financial compliance partner with a credible track record who can provide regulatory updates to your team.

Stay Up to Date on New Financial Compliance Regulations

You can’t comply with legislation you don’t know about.

Learn about new financial compliance rules and regulations and stay up to date on changes to existing laws to ensure you remain in compliance.

Communicate Financial Compliance Policies & Updates

Consistently communicate about financial compliance policies and updates with your employees. Every relevant internal party should be aware of changes to regulatory laws, be trained in how to comply with federal regulations, and have a clear understanding of the importance of financial compliance.

Perform Regular Inspections of Financial Data

Regularly inspect and audit data centers to look for signs of criminal activity as well as ensure your business maintains proper compliance with financial data regulations.

Contact Fisher, P.A. for Business Accounting and Financial Compliance Assistance

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