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Coping with the unknown: A process method to manage regulatory change

Consider the benefits of a business-first approach

INSIGHT ARTICLE  | 

GDPR. ASC606. AML. COSO. TCJA. CECL. The list of acronyms is endless. Business leaders can live in fear of these sweeping regulations—often meant to mitigate risk in large corporations, but also causing major impact to the middle market. But is every regulation imposed a cause for panic? Is every regulation lifted a cause for celebration? It depends.

For middle market businesses, the costs associated with implementing regulations related to finances, security, compliance, audits, safety or social responsibility are often the first point of concern, and can put businesses in a defensive position. The pain to comply seems disproportional to the risk of not doing so, or even the intended reward.

A good regulatory evaluation process—one that takes the entirety of your business into consideration—can change your perspective about new, changing or alleviated regulations and focus your attention on the overall value your company stands to gain or lose. The result can mean a significant shift in the way you approach the news of impending regulatory change.   

A business first approach

It’s your business. While policy and regulation can dictate many aspects of it, the business remains yours. You must determine how to approach any given regulation so that your business gains the most benefit.  Establishing a consistent, business-first operational and strategic approach can make challenges easier to identify, enabling your organization to be nimble when new regulatory demands arise, be thoughtful in determining what those changes are, and become diligent in driving necessary change throughout your organization.

In addition, an established process can give your business focus and avoid attempts at solving too small of a problem. You may meet the regulatory requirements for a specific process, but have you opened up risk in another area? Without the proper perspective, well-intentioned adjustments can result in unintended consequences, including issues in other areas of the supply chain or violating contract agreements with customers.  

Take a position that will allow you to adapt to almost anything that emerging regulations can throw at you.  An approach like the one below can help ensure ongoing compliance, minimize business interruptions and make it easier to assess your next move.

1. Understand what regulatory requirements have changed

Before making any business process adjustments, you need to fully understand the extent and scope of regulatory changes. Was a regulation added, eliminated, altered or shifted to another regulator? Ultimately, you should not make changes in response to a regulatory change without understanding the complete picture. 

2. Assess if business objectives outside of regulatory requirements impact the desired operational approach

Determine whether business processes must change with new regulation, or whether there is a continued desire to maintain processes even following the removal of a regulatory requirement. Some factors to consider include impacts on: potential legal liability, brand protection, stakeholder expectations, counterparty agreements, etc.  

3. Design new business processes aligned with new operating objectives

Once the desired operating objectives have been identified, develop a future-state vision for the design of business processes aligned with the stated objectives. This effort may require adjustments in processes, supporting technology and the people responsible for execution and oversight.

4. Implement and execute monitoring and compliance processes and controls

Design and implement the processes and controls that will assist in monitoring the performance of the newly implemented business process(es), to demonstrate and document sustained compliance with regulatory requirements or desired business objectives.

Expect change and make it part of your process. Evaluate every regulatory guideline that comes your way—some may not be requirements, but the principles could help strengthen your business. In fact, evaluate every regulatory guideline that is removed, too. You may find that the processes you implemented are simply good business, even if not required.   

Running your company in an environment of consistent regulatory change can seem daunting. Taking control of that uncertainty with a business-first approach can help frame regulatory guidelines to better understand how to act on that change. This strategy can put your business in an advantageous position to manage not only current regulations, but also more effectively plan for other emerging regulatory actions. 

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