What’s the Difference Between Proactive and Reactive Compliance? | MinuteBox Cloud Entity Management

What’s the Difference Between Proactive and Reactive Compliance?

Corporate compliance is a fluid concept. Lawmakers enact regular changes to corporate compliance protocols, requiring business entities to adapt their compliance programs accordingly. However, there’s a difference between proactive and reactive compliance that impacts business operations, financial costs, and legal matters for qualifying entities.

In this guide, let’s define the differences between a proactive and reactive compliance program. You’ll also learn about recommended tools and workflows to create a more proactive approach to corporate compliance. All these guidelines will help you keep your organization in the good graces of lawmakers and regulators.

What is a corporate compliance program?

First, you must define a corporate compliance program that you can implement in your organization. A corporate compliance program is a series of internal policies and procedures to detect and prevent violations of federal or jurisdictional regulatory laws.

Non-compliance can result in significant financial penalties and even legal charges for extreme violations. A corporate compliance program is an example of a proactive approach to compliance that protects your organization, executive managers, and shareholders from the consequences of non-compliance.

Do you need a corporate compliance program or fresh ideas to update your established compliance protocols? Read this guide on the seven legal elements of an effective corporate compliance program for inspiration.

What’s the difference between proactive and reactive compliance?

Traditionally, businesses have been very reactive in how they approach compliance. But today’s leaders recognize that proactive investments in compliance and corporate governance create fewer headaches and actually save costs over the long term.

What is an example of reactive compliance?

Reactive compliance describes how companies respond after a breach in compliance occurs. For example, regulators flag errors in reported legal entity management data that violate compliance protocols.

In response, the violating company must commit days, weeks, or even months towards rectifying the matter. Legal and compliance teams must conduct thorough audits, surveillance, and investigations to determine what caused the breach in compliance. These are very costly and time-consuming workflows that handicap and stunt the growth of your business.

What is an example of proactive compliance?

Proactive compliance, as the term implies, describes the actions taken by a company before a potential act of non-compliance occurs. Unlike reactive compliance, proactive compliance addresses potential risks in advance by installing a culture of compliance throughout the entire organization.

A diligent corporate compliance program is an example of a proactive investment in corporate compliance protocols. It establishes rules and procedures that all employees must follow to maintain corporate compliance.

These programs are especially helpful for large organizations with multiple entities and subsidiaries stationed in diverse global locations. Leaders of each entity or subsidiary can refer to the master compliance guidelines and ensure each corporate division abides by regulatory laws and mandates.

Business benefits of proactive vs. reactive compliance

Sometimes, laws are enacted that force most businesses to adopt more stringent compliance protocols. A recent example is the enactment of the Corporate Transparency Act and the new rules for beneficial ownership information (BOI). Qualifying entities operating within the United States must submit BOI reports to the Treasury Department’s FinCEN unit or incur penalties for non-compliance.

A proactive compliance program prepares businesses for these kinds of sweeping regulatory changes. A Chief Compliance Officer’s responsibilities include monitoring, auditing, and enforcing compliance protocols. Those protocols include the inputting and reporting of all legal entity management data — along with all information on beneficial owners and shareholders.

When filing deadlines are approaching on the calendar, companies can be in one of two positions — scrambling to gather all reporting data or fully prepared to submit compliance data.

Your legal and compliance teams can avoid a hectic scramble near filing deadlines by maintaining proactive approaches to corporate compliance. They’ll save valuable working time because they’ve gathered all the necessary filing data ahead of time. All that’s required is to organize that data into reports ready to be filed and submitted to the appropriate authorities.

Eliminate the financial costs of reactive compliance.

Perhaps the greatest benefit of proactive compliance is that it eliminates the costs of reactive compliance.

If you wait until after a breach of compliance occurs, you have to go through the legal process of correcting the breach. That process is very costly as last-minute legal fees, filing charges, and any fines issued against your business will eat into your operating budget.

Adopting a proactive approach to corporate compliance should eliminate the risk of a breach. As a result, you won’t need to carve out a significant portion of your budget to cover the legal consequences of non-compliance.

How to create a proactive corporate compliance program

The best way to create a corporate compliance program and adopt a proactive approach to compliance is with a structured entity management system. Proactively compliant companies use entity management software as single sources of truth for all reporting compliance data.

Additionally, entity management platforms like MinuteBox have a built-in corporate transparency register. Companies that are required to submit BOI reports — as per the Corporate Transparency Act — can use MinuteBox’s corporate transparency register to gather, file, and submit BOI data and maintain compliance.

The register uses a guided wizard to help you keep track of beneficial owners with significant control. Using these guided templates will help you comply with transparency obligations and maintain an accurate database of all shareholders, including those with significant control. It’s a fast, easy, and proactive way to maintain compliance and protect your corporate interests.

Ready to adopt a more proactive approach to corporate compliance? Join the MinuteBox revolution today and introduce a more proactive corporate compliance workflow to your organization.