Corporate Compliance Is Being Compromised Under Pressure

59% of Businesses Always Compromise on Compliance Due to Business Pressures or Competitive Threats, Reveals Creditsafe Study

Managing compliance is incredibly tough. It can be time-consuming, costly and create a ripple effect of problems across your business. At the same time, the number of data privacy, financial and sanctions violations have increased in the last year. The Barriers to Compliance Maturity study, released today by Creditsafe, reveals that compliance risks often take a backseat to corporate pressures and competitive threats.

In fact, over half (59%) of the respondents said they always compromise on compliance due to business pressures, while another 16% said they frequently do. On top of this, 50% of the respondents cited a lack of compliance leadership and direction as the primary reason for compliance failures. What’s more, the study shows that a company’s compliance maturity is often heavily influenced by how the leadership team sets the tone and direction for compliance.

Steve Carpenter, COO of North America at Creditsafe, explains, “Oftentimes, risk and compliance teams have pressures coming at them from all sides. Unfortunately, many companies are hiring risk and compliance teams as more of a tick-box exercise than anything else. They aren’t empowered to make decisions based on risk. In many cases, the leadership team may step in and apply pressure due to the commercial needs of the business or as a reactionary response to competitor threats. This is why it’s so important for leadership to set the tone, direction and purpose of the compliance program. When compliance is made a top priority within a company’s long-term strategy, you tend to see the compliance and risk teams being more stringent and focused on managing compliance continuously. But it has to come from the top leadership and be reinforced across the entire business.”

Highlights from the report include:

• Continuous compliance is a rare occurrence in most organizations. Our study found that 50% of businesses only check customers for potential compliance violations at the start of the relationship/contract, while 18% only do so if they suspect something could be amiss. In contrast, only 26% of businesses continuously monitor their customers for compliance issues throughout the customer lifecycle.

• Companies are letting relationships override compliance policy. A whopping 79% of businesses admitted that they’ve chosen not to run a compliance check on a customer or supplier because they had a good relationship with them. This could explain why 50% of the respondents admitted to missing up to 15% of potential violations by their customers and suppliers.

• Businesses admit to compliance maturity being minimal and reactive. When we asked businesses about their compliance maturity, the results were both surprising and worrying. Almost half (43%) of the respondents assessed their compliance maturity to be at Level 1 (Minimal), meaning that compliance isn’t an overall priority for the business. Meanwhile, 26% of the respondents said their compliance maturity is at Level 2 (Reactive) and just a series of boxes to tick. What’s more worrying is that only 6% of the respondents believe their compliance maturity is at Level 5 (Strategic), meaning that their strategic approach is helping to drive their competitive advantage.

• AI and automation could replace human compliance officers by 2029. Our study found that 76% of the respondents believe AI and automation will replace human compliance officers in the next 5 years.

To understand why continuous compliance is so important, Steve Carpenter shares an example scenario that he’s seen occur during his career. “Let’s say you’ve been working with a supplier for three years. You know them well – their quality of work is stellar and their track record of delivering your goods in full and on time is excellent. You trust them and plan to work with them for years to come. What would happen if this trusted supplier decided to source materials for one of your orders from a vendor in a country that’s on the OFAC sanctions list, but you didn’t know about it because you didn’t run a compliance check on them? Would your company be liable for that sanction violation? Yes, it would be liable because the supplier sourced those materials for your production order. So, that violation has happened within your global supply chain. You should never assume the businesses you work with are taking compliance seriously – regardless of how long you’ve worked with them and how much you trust them. Trust isn’t a valid form of currency in business. Only data can provide that certainty.”

ABOUT CREDITSAFE

Creditsafe, the global expert in credit monitoring and risk management, is the world’s most used provider of business reports. Today, over 115,000 customers globally depend on Creditsafe to make critical business decisions. Using real-time data from over 9,000 sources across over 200 countries and territories, Creditsafe’s mission is to help businesses mitigate financial, legal and compliance risks, while also empowering them to make more informed decisions. To learn more, visit our website.

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