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Regulatory change management is the process of aligning your organization to the regulatory environment in which your business operates – including industry, countries, and regulatory agencies – monitoring regulatory developments across applicable issuing bodies, and adapting your policies, standards, and controls to applicable regulations to ensure continuous compliance. Internal to your organization, regulatory change management can include critical assessments, planning, implementation, and monitoring processes to ensure your organization is aligned with all relevant regulatory requirements. It also includes the identification of the stakeholders in the business, an assessment of the impact of a regulatory change, development of plans to address changes, and the active monitoring of plans to ensure continuous effectiveness.
The digital transformation of several industries, especially ones like banking and financial services, is driving several changes to the regulatory landscape. According to a report by McKinsey and Company, digitalization has increased regulatory scrutiny and prompted better risk controls. To meet these challenges, organizations need robust regulatory change management (RCM) programs in place. RCM helps organizations ensure compliance with relevant regulations and manage compliance risks.
For many businesses, staying compliant with ever-changing regulations can be a daunting task. Regulatory change management is the process of keeping up with and implementing new policies, standards, and controls aligned to new regulatory requirements. It's a vital part of any business and every compliance program, but it can be difficult to keep up with constant changes. Here's everything you need to know about regulatory change management.
What are the Key Aspects of Regulatory Change Management?
There are many different aspects to consider when managing regulatory change, including
- Clearly defining which regulatory agencies and issuances apply to your organization around the world where it operates (including third parties, as applicable)
- Aligning your organization to existing applicable regulations
- Monitoring upcoming, in development, and relevant regulatory activities, including investigations and enforcements, legislative activity, and changes of existing applicable regulations
- Understanding the scope and impact of a regulatory change on your existing policies, controls, and compliance program
- Identifying which processes and procedures may be and will be affected
- Assessing risks and any changes to your organizational risk profile associated with the change
- Adapting and implementing controls aligned to regulatory changes to mitigate those risks
- Communicating applicable changes to all relevant stakeholders (including employees, partners, third parties, and executive leadership)
- Monitoring the change to ensure it is being effectively managed
- Reviewing and updating the change management plan as needed
What are the Main Challenges that Arise from Regulatory Changes?
Some of the critical challenges organizations face due to regulatory changes include:
Cost: The cost of an appropriate compliance program can be significant, especially for small organizations with limited global reach and industry breadth. The cost of regulatory compliance can be significant as well, though it is often less than the cost of non-compliance should there be a failure, breach, or investigation.
Time: the process of complying with regulations can be time-consuming and resource-intensive. Regulatory changes can take a long time to process and implement, especially if done manually, through a legal team, or outsourced to a legal entity with minimal automation.
Complexity: Regulations can be complex, reach across borders, and voluminous, making it challenging to review, curate, understand, and comply with them. Therefore, clarity in regulatory change management can create clarity within organizations.
Flexibility: Organizations need to maintain flexibility to adapt to ever-changing regulations. They must be able to adapt their business practices to comply with new regulations as necessary, sometimes causing issues with strategic and operations planning for the business.
Risk: There is always a risk that non-compliance with regulations could lead to audit failures, reputational damage, investigations, penalties or other legal actions. Further, misalignment with regulatory updates can have a ripple effect on other areas of the organization, such as supply chains, contracts, and IT systems.
Why is it Important to Capture and Track Regulatory Changes?
It is important to capture and track regulatory changes because they can have a significant impact on a business’s entire compliance program, how it operates in different marketplaces, and how it manages its risks. Regulatory changes can originate from many issuing bodies, including government agencies, and legislators. It also often makes sense for businesses to monitor best practices, standards, and enforcement actions to help further define regulatory expectations.
A few key reasons why it is important to capture and track regulatory changes includes:
Ensuring compliance: By keeping track of regulatory changes, companies can be sure that they are always compliant with the latest rules and regulations. This is especially important for companies that are multinational and in heavily regulated industries, such as those in the financial, healthcare, and energy industries.
Avoiding penalties: Not being compliant with regulations can result in hefty fines, reputational damage, and other penalties. Keeping track of changes can help companies maintain current compliance programs and avoid penalties. For example, if an insurer doesn’t update its policies to comply with new regulations, it may find itself in defending its practices to investigators down the road. By keeping track of changes, these insurers can avoid potential issues before they become serious problems.
Staying competitive: Regulations can impact how companies do business. Keeping up with changes can help companies stay ahead of the competition. A change in the tax code can impact the way a company competes with other companies in its industry, for example. A change in environmental regulations could impact the way a company’s products compare to those of its competitors.
Protecting consumers: In some industries, such as the food industry, many regulations are put in place to protect consumers. Companies that don't keep up with changes could be putting consumers at risk and themselves at risk for litigation and reputational damage. A change in minimum wage laws impact a company’s labor costs, but misalignment could cost much more in fines. A change in environmental regulations could impact the way a company produces its products.
What are the Five Key Components of a Regulatory Change Management Framework
There is no definitive scope for what entails regulatory change management, but it can be summarized under five key areas, including:
Regulatory landscape: An overview of the regulatory landscape and the changes that have occurred within it.
Change management process: An outline of the change management process, including the roles and responsibilities of those involved. A clear and concise strategy for identifying, assessing, and responding to regulatory changes.
Communications and training: An outline of the communications and training strategy for ensuring all stakeholders are kept up-to-date with changes to the regulatory landscape. It must include a mechanism for quickly and effectively communicating regulatory changes to affected parties and a plan for ensuring that all employees receive training on the new regulations.
Monitoring and reporting: An outline of the monitoring and reporting mechanisms in place and a system for tracking and monitoring compliance to ensure compliance with the new regulatory landscape. It must include a process for periodically reviewing and updating the regulatory change management framework.
Governance: An outline of the governance arrangements in place to ensure the effectiveness of the Regulatory Change Management Framework.
What are the Benefits of a Regulatory Change Management Framework?
There are many benefits to implementing a regulatory change management framework within an organization. A few key benefits include:
Improved organizational efficiency: By having a standardized process in place for managing regulatory changes, organizations can avoid duplication of effort and ensure that all relevant stakeholders are aware of and involved in the change process.
Enhanced decision-making: With a clear framework in place, decision-makers can more easily assess the potential impacts of proposed changes and make informed decisions about which changes to implement.
Reduced risk of non-compliance: By proactively managing regulatory changes, organizations can minimize the risk of inadvertently violating new or amended regulations.
Greater stakeholder buy-in: Stakeholders are more likely to support changes that have been through a rigorous and transparent change management process.
Increased transparency and accountability: A well-designed regulatory change management framework can help to increase transparency and accountability within an organization, fostering a culture of compliance.
The Regulatory Change Management Process
There is no one-size-fits-all answer to this question, as the change management process will vary depending on the organization and the specific change being implemented. However, in general, the regulatory change management process typically includes the following standard change management practices:
1. Planning the change
This step involves identifying the goals of the change and developing a plan for how it will be implemented. Further, it requires organizations to understand and recognize the need for change and create a plan to implement it.
2. Initiating the change
This stage involves communicating the change to those who will be affected by it and getting their buy-in. When initiating regulatory change management, this also means identifying alike or earlier versions of the regulation within the organization’s regulatory library. Further, it means identifying what specific changes have been made, whether those changes warrant change management, and assessing how those changes may impact existing practices, controls, and policies. Finally, it means following a predefined workflow, process, and authorizations to evaluate, assess, and integrate relevant regulatory changes.
3. Implementing the change
This stage involves making the changes and ensuring that they are carried out effectively. Typically, this may involve multiple teams in the organization, including the legal team, compliance team, risk management and executive teams working in unison to process any regulatory updates.
4. Monitoring and evaluating the change
This step involves monitoring the progress of the change and assessing its effectiveness. It may include training or retraining key organizational stakeholders, initiating surveys, and tracking reporting of violations. Further, it involves assessing the impact of the regulatory changes on the organization and making any necessary adjustments.
5. Adjusting to the change
This step involves making adjustments to the change if it is not working as planned. Further, it involves maintaining the changes over the long term to ensure that they stick.
Best Practices for Regulatory Change Management
The best practices for Regulatory Change Management can be different based on the specific organization and regulatory environment. However, some general best practices that are often recommended include:
- Defining clear roles and responsibilities for those involved in Regulatory Change Management
- Developing and maintaining a centralized repository of all relevant regulations and regulatory updates
- Tracking and curating relevant regulatory changes from all applicable jurisdictions to ensure the organization maintains awareness of current and future regulatory updates
- Establishing clear procedures for assessing the impact of regulatory changes on the organization
- Creating and maintaining detailed documentation of all changes made in response to regulatory changes
- Conducting regular training and awareness sessions for all staff on the Regulatory Change Management process Periodically reviewing and updating the Regulatory Change Management procedures to ensure they remain fit for purpose Engaging external experts to provide independent advice and guidance on Regulatory Change Management, as required
Goals of Regulatory Change Management
There are several goals that regulatory change management seeks to achieve, including:
- Ensuring that all stakeholders are consulted and involved in the process and ensuring that all stakeholders are kept up-to-date on the latest regulatory changes and their implications
- Managing the expectations of different stakeholders and coordinating with all relevant departments and functions within the organization to ensure a coordinated approach to regulatory change
- Coordinating the implementation of changes across different departments and functions. This requires managing communications with external stakeholders, such as customers and suppliers, on the regulatory changes
- Ensuring that changes are communicated effectively to all affected parties, as well as educating employees on the new regulations and ensuring compliance
- Minimizing the disruption to business operations during the implementation of changes
- Managing and implementing processes and controls to mitigate risks associated with regulatory change
- Conducting impact assessments to identify potential business impacts of regulatory change. Further, monitoring and reviewing the effectiveness of the organization’s response to regulatory change.
How does Regulatory Change Management Software Help Organizations?
Regulatory change management software helps organizations manage regulatory change by providing a centralized repository for all regulatory information, automating the process of identifying and tracking changes, and providing tools for collaboration and communication. Regulatory change management software can help organizations keep up with changing regulations, minimize the impact of regulatory changes on operations, and ensure compliance with new regulations.
Here are some ways regulatory change management software can help organizations:
- Manage and keep track of changes to regulations
- Identify which regulations apply to them and track compliance with those regulations
- Automate regulatory change processes, saving time and resources
- Identify potential regulatory changes that could impact their business and operations Improve communication and collaboration around regulatory changes
How MetricStream Helps
MetricStream’s Regulatory Change Management software is a state-of-the-art solution to help organizations accurately measure the outcomes of their RCM programs. With MetricStream, organizations can reduce compliance costs by up to 90% as well as make responses to regulatory changes faster by 60%.
The solutions offer an intuitive dashboard that allows organizations to monitor and track regulatory changes, define business rules, and conduct impact analysis for quicker identification of risks associated with regulatory change. The platform enhances visibility for organizations and enables a comprehensive view of the regulatory landscape to help navigate it.