3 Risks and Consequences of Regulatory Non Compliance with Examples

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risk of regulatory non compliance

What is Non Compliance?

Regulatory non-compliance occurs when an organisation fails to comply with the policies, standards, regulations or laws relevant to its operations.

Examples of non compliance include:

  • Failure to wear personal protective equipment (PPE)
  • Insufficient administration of operations
  • Failure to obtain proper certifications/illegal operations
  • Failure to follow operation procedures
  • Failure to report to relevant authorities

The Consequences of Non Compliance

consequences of regulatory non compliance example by Nimonik

The consequences of regulatory non-compliance can be costly. Worker injuries and deaths, property damages, lost production, and jail time are just a few examples. Even though compliance improves efficiency and protects businesses from heavy penalties, most companies continue to wrongly view it as an operation cost rather than an investment.

Companies therefore minimize or completely overlook the purchase of compliance software, data and services and tend to under-staff their compliance teams. However, as Henry Ford once said about buying machines,

“If you need a machine and don’t buy it, then you will ultimately find that you have paid for it and don’t have it.”

In other words, in the context of regulatory compliance, the cost and risk of non-compliance can very easily outweigh the cost of investing in compliance efforts. What we see, over and over, is that businesses that ignore the importance of proactive compliance still end up paying for compliance– only it is through penalties, reputational issues, and product delays.

The Risk of Non Compliance

risk of regulatory non compliance

1. Penalties and Fines

Penalties on regulatory non compliance come in multiple forms: financial fines, limitations on activities, additional barriers to approval and even prison. Even if your organization is not given an actual penalty, an investigation by a government body will cost you many hours of work and potential legal and contractor fees. The list of companies receiving penalties is long, just recently BMW was fined 10 M Euros by South Korea for a failure to comply with recall regulations and notify the government quickly in time about a product recall. This week, Google was fined 50M Euros for breaches of France’s data privacy regulations under GPDR.

To minimize your risk of a penalty or fine, Nimonik has outlined a six step guide to comprehensive compliance to help businesses ensure EHS regulatory compliance. With the key pillars of documentation, follow-up, and tracking, you can implement a robust compliance system and framework to avoid penalties. 

2. Reputational Damage

In the 1990s, the famous Kathy Lee Gifford was caught in a maelstrom of controversy when her clothing line was found to be produced in sweatshops that used child labour. Investigators went on to find similar issues with many other companies such as Nike. Many of these companies have since then dramatically improved the management of their supply chains, but the initial media frenzy caused a substantial reputational cost. Despite years of effort, many companies have failed to implement the most basic audit and compliance efforts in their supply chain. Just last week the Spice Girls were found to be manufacturing their t-shirts promoting gender equality in horrible sweatshop conditions in Bangladesh.

The consequences of non compliance are not limited to the direct offender, either. A few years ago, companies like Joe Fresh were caught flat footed when one of their suppliers lost 1,134 workers in a collapse of a building in Bangladesh. The building obviously did not meet basic Building Code requirements – let alone health and safety issues. The lack of management of suppliers remains a huge challenge and a substantial financial concern for many international businesses. And needless to say, the over a thousand worker deaths caused by this negligence is a tragedy all entities should aim to avoid.

Ensuring compliance in your supply chain is a significant challenge and is often put on the back-burner until a scandal explodes.

3. Access Issues to Markets and Product Delays

One of the most financially damaging events a company faces is having their products blocked at the border, forced to issue a recall or forced to destroy merchandise due to issues related to non compliance.

Just this past Christmas, I went to buy my favourite Italian cakes that contain a little bit of alcohol. The store informed me that the cakes were held up at the border because the cakes had 0.7% alcohol and in Canada, you need a permit for anything above 0.5% alcohol (Act respecting offences relating to alcoholic beverages, CQLR c I-8.1 – note the ambiguity in s.102 about food!). There was not enough time to get a permit for the Christmas season, and so the retailers, the distributors and the manufacturer took a substantial financial hit during one of the busiest times of the year. Next year, they will send cakes with only 0.5% alcohol. How much did that knowledge gap cost them?

On an even larger scale, a car company in Brazil was introducing a new minibus vehicle. During the design process, they validated all of their safety compliance issues – airbags, seatbelts, breaks, etc. It then took 12 months to ramp up the production of the vehicle and build the first thousands of units.

The company was getting ready to send the cars to dealerships across Brazil when they realized that the safety regulations concerning seatbelts had changed during the production period. They now needed to replace all the seatbelts in thousands of vehicles to be able to sell them on the Brazilian market. The cost was in the millions.

Bonus Non Compliance Risk: Regulated Out of Business

Though rare, once in a while, governments will actually regulate activities out of business. This can be a specific chemical product, an activity that is deemed dangerous to society or something that is no longer considered moral. California recently banned the sale of non-rescue animals in pet stores – potentially putting the end to many puppy mills. The list of industries that have come under strict regulation is long and growing – cigarette companies, lead in gasoline & paint, asbestos products, SO2 emissions, and various chemicals such as DDT.

You may think that your business is immune from such dramatic action, but public opinion can turn quickly. Other businesses that may be subject to strong regulation include online advertising and data gathering apps, blockchain related technology or even the meat industry that is coming under increased scrutiny.

Conclusion

Robust compliance programs are hard and expensive. However, a sporadic or non-existent compliance program is far more damaging. To stay competitive in an international, complex, and evolving market, your organization must ensure ongoing compliance. The best way to do this is a proactive and organized approach to compliance that covers various activities– HR, EHS, product design and stewardship, and import and export regulations. Contact Nimonik to discuss how we can help you ensure robust compliance.

Alternatively, you can read more on how to ensure compliance with regulatory requirements.

About Nimonik

Nimonik exists to help organizations comply with regulatory requirements – leading to less environmental damage, better worker safety and higher quality products. We can help you with:

  • a comprehensive list of EHS requirements that apply to your operations and alert you when those requirements change.
  • an easy to use web app so you can act on the changes, collaborate with teams, and maintain complete logs of your compliance efforts, retrievable at the click of a button.
  • a mobile auditing app that will save you hours in auditing, report writing, and corrective action follow-ups.
  • air-monitoring devices so you can easily monitor indoor or outdoor pollutants online and receive alerts when they exceed your set limits.

We take pride in the accuracy and comprehensiveness of our regulatory content, speedy updates, easy to use software, exceptional customer support, and state of the art IT security that none of our competitors can match.

Contact us to discuss how we can help make your regulatory compliance more efficient.