What are the top compliance challenges faced by businesses?

Perhaps the biggest challenge facing a business in 2024 is not knowing what they don’t know especially in light of the many legislative changes which are on the horizon! Innocent oversights can sometimes have serious consequences from a legal perspective. In this article we will highlight some of the most common challenges SMEs are facing and how potentially these can be mitigated. Compliance refers to the ways in which a business ensures they are following both their own internal compliance structure and all the laws and regulations that apply to their business or industry. However, compliance is not just about following the letter of the law, it is about planning and prevention. A robust compliance programme can help reduce legal costs and resolution time of regulatory issues and fines. We have highlighted below three challenges which have had recent legislative changes introduced which businesses need to be aware of.

Data Protection/GDPR – Data is now more valuable than ever which has forced the UK legislature to introduce additional safety measures for individuals when dealing with businesses. Whilst the Data Protection and Digital Information Bill introduced in 2023 aimed at simplifying data protection laws for business, there still remains significant onus on those businesses to manage and understand their responsibilities. Do you know what personal data you hold? When did you last check whether this was up-to-date? Do you hold any “special” categories of personal data? Do you need a Data Protection Officer? A simple assessment of the type and use of data within your business can help to mitigate the risk of breaching data laws. Fines remain high for breaches of data protection however it is the reputational impact that probably affects businesses more in the long term.

ESG Reporting and CSR – Environmental, social and governance reporting along with corporate social responsibility are all matters which are increasingly challenging yet important for businesses, their employees and customers. There are numerous environmental laws which all businesses need to be aware of and comply with, with some industry sectors being more regulated than others. Areas for consideration include waste management and disposal, pollution, energy consumption, and emissions. It is incumbent on the business to determine their own business philosophy and ethos and put policies in place to manage and monitor this. Having a detailed environmental policy can not only be a reputational enhancer but it can be a unique selling point and employee retainment or recruitment factor.

Recent evidence points to the UK moving to adopt international standards in 2025 which will introduce changes to current reporting requirements. At the moment, most reporting requirements apply to medium and large companies however with the new government in power with manifesto pledges on energy independence and clean energy by 2030, it is likely businesses of all sizes will see some level of impact.

The social element of ESG generally focuses on the business relationship you as a business have with your employees, customers and community. Legal obligations here can include the need for policies and procedures related to workplace discrimination, modern slavery, health & safety, equality, diversity and inclusion as well as supplier codes.

Finally, the third arm is governance which combines legal obligations as well as ethical and moral considerations. This refers to the way businesses are directed, controlled and how it manages its operations. Good governance focuses on promoting ethical behaviour, transparency, accountability and effective decision-making processes within the business.

Corruption & Anti-Money Laundering – A recent report* claimed that there are no corruption-free zones in Europe surmising there is pressure mounting on businesses to strengthen professional integrity, build trust and fight corruption. The report goes on to claim that “most unethical activity is done by otherwise honest employees who, due to circumstances or peer pressure, are compelled to act unethically”. Supported by a 2024 PwC** report which estimated more than US$1 trillion is paid each year in bribes globally, and that US$2.6 trillion is lost to corruption – that’s 5% of global GDP.

This may sound all doom and gloom, however ensuring you risk assess your business and put in place internal controls and monitoring systems, you minimise your exposure to corruption. Customer and supplier due diligence is a must to ensure you know where money is coming from especially around high value transactions or where that customer or supplier is not physically present or is based overseas. Traceability of funds through good internal controls and procedures is key to reduce the risk of money laundering. Linked to this, the Economic Crime and Corporate Transparency Act 2023 was introduced in Oct 2023 giving Companies House new powers to interrogate the information submitted to it and request verification for company directors and persons with significant control. The effect of the ECCTA will be felt by all businesses with more robust and thorough investigations when submitting Company House filings.

These legal challenges are not insurmountable and with a Franklins outsourcing legal health-check we can provide practical and affordable solutions to help you plan for compliant business growth.

You can contact our Legal Outsourcing team here or call on 01604 936512 / 01908 953674 or email info@franklins-sols.co.uk.