Regulatory Compliance: Business Meaning, Enforcement & Noncompliance

••• Jirapong Manustrong/iStock/GettyImages

Related Articles

When a company is in compliance with industry regulations, that means it is obeying all industry-specific laws that it is required to obey. This can also refer to the generally accepted compliance meaning in court, which is compliance with applicable laws.

Understanding Compliance Meaning

Another word that can help us understand compliance meaning is conformity. A company that conforms to its industry’s standards and meets its legal requirements is one that can be said to be compliant and thus, enjoy the benefits of being in compliance. These benefits vary from industry to industry and regulatory agency to regulatory agency.

For example, a company that is not compliant with the Securities Exchange Commission’s financial reporting requirements can face fines, whereas a food producer that is not compliant with the U.S. Department of Agriculture’s organic labeling requirements simply cannot advertise their product as organic.

Contrasting Noncompliance Meaning

One way to understand compliance is to contrast it with noncompliance, the failure to conform to established regulations. The noncompliance meaning refers to any action, product or ongoing behavior that fails to meet applicable regulations in some way. Generally, this phrase is reserved for explicit violations of legal regulations, rather than instances of products or practices that simply fall short of regulatory standards.

The concepts of compliance and noncompliance are generally understood according to the compliance meaning in court. Typically, the legal term, compliance, refers to regulatory compliance, which is the state of conforming to established industry-wide regulations. These regulations are legally mandated. A specific example of compliance meaning in court is the Occupational Safety and Health Administration’s regulations governing the maritime industry.

Read More: What Is Compliance?: Legal & Business Definitions & Noncompliance

Who Enforces Compliance?

There is no single entity that enforces compliance across industries. Rather, government agencies at the state and federal levels are responsible for enforcing compliance with the laws that apply to the industries they oversee. Examples of these agencies include:

  • Occupational Safety and Health Administration (OSHA), which enforces compliance with employee safety laws.
  • Equal Employment Opportunity Commission (EEOC), which enforces compliance with antidiscrimination laws like the Americans with Disabilities Act.
  • New Jersey Division of Gaming Enforcement, which oversees the legal gambling industry in New Jersey.
  • Securities and Exchange Commission (SEC), which enforces compliance with laws such as the Sarbanes-Oxley Act, which protects investors and consumers from financial fraud.
  • California Bureau of Cannabis Control, which regulates the legal cannabis industry in California.

In some industries, regulatory standards are enforced by private agencies. These agencies are known as self-regulatory organizations, or SROs. A few examples of SROs include:

  • Financial Industry Regulatory Authority (FINRA).
  • American Institute of Certified Public Accountants (AICPA).
  • New York Stock Exchange (NYSE).

These agencies have the power to certify that the companies that fall within their jurisdiction are compliant. Failure to comply with industry regulations can lead to loss of professional certification, which can be a significant hit to a company’s credibility within its industry.

Consequences for Noncompliance

The compliance regulations enforced by government and nongovernment agencies exist to protect parties that could potentially be harmed by noncompliance, such as consumers, workers and shareholders. The consequences a company faces for failing to comply with its industry’s regulations include:

  • Loss of professional permits.
  • Loss of professional certification.
  • Fines.
  • Restitution for victims.

The specific consequences that a company faces for noncompliance will depend on various factors, such as the nature of the violation, the specific law violated, the company’s compliance record and the losses that resulted from the violation. Additionally, failure to comply with industry regulations can generate negative publicity for a company, which can result in lowered profits and a permanently damaged reputation.