Regulatory reporting is the submission of data to a relevant authority in order to demonstrate compliance with the necessary regulatory provisions. In simpler terms, it is the process businesses and individuals must continually go through to show they are following all the rules.
How does regulatory reporting work?
Chances are, you’re probably already doing plenty of regulatory reporting – perhaps even without realising that’s what it is. The reality is, regulatory reporting can be done in many ways – both internally and externally – and all that technical jargon tends to make it sound scarier than it is.
At a properly functioning organisation, there will usually be periodic external audits to ensure protocols are being followed, as well as regularised internal processes to ensure the proper procedures are being followed.
Here are four basic ways regulator reporting happens:
1. Record keeping
This is perhaps the most common form of reporting. In essence, it involves maintaining accurately detailed records of every transaction and every process, ensuring you have clear evidence that you are following protocols to the letter.
2. Processes and procedures
Because the various guidelines and legal requirements tend to be integrated into the flow of a business’s everyday operation, many standard practises you don’t think twice about actually act as regulatory reporting – from explaining your terms and conditions to signing paperwork.
3. Handling complaints
When following any formal procedure, you are following a regulation – and therefore need to report on it. When you fill out paperwork involved in handling a complaint, or disciplining a worker, you are producing a regulatory report.
4. Onboarding and formalised training
Any form of onboarding, training or performance appraisal will be subject to regulation – generally both internal and external. And this means simply adhering to these guidelines constitutes regulatory reporting.
Of course, these are by no means the only ways regulatory reporting occurs, and depending on your organisation’s size and industry, it may be much more or less complex.
Why is regulatory reporting so important?
The importance of regulatory reporting really can’t be overstated: few businesses can operate safely without it. There are four reasons for this:
Particularly today, with increasing public demands for transparency, following regulation to the letter is a vital part of creating public trust. By adhering to laws around fair practise, sustainability and inter-personal ethics, organisations can gain a positive public reputation.
This is particularly true in sectors and areas which are deemed to have a high impact on the public interest. Because supply chains can have such drastic implications for the environment, and very often involve numerous different jurisdictions, regulation must be very carefully followed to avoid dangerous mishaps or disastrous errors of judgement.
Regulation is vital for maintaining trust within an organisation, and giving workers the peace of mind that there are clear protocols being followed which ensure their safety – both physically and legally.
When everybody understands the rules, things can function far more efficiently. It is also the case that many things businesses are forced to report on - like Modern Slavery Reporting, or Gender Pay disparities - are in the interest of employees to know about.
It is extremely useful to have strong regulatory reporting available as data, too. If something goes wrong, regulatory reporting can provide a useful bread crumb trail to understand exactly what and why something happened.
It can be useful information to reassure investors or buyers during a due diligence, as well as helping leaders better map the progress of their firm.
Avoiding legal issues
Primarily though, regulatory reporting is a major legal requirement, and failing to do it properly can cause serious financial and legal problems for an organisation or individual. Without the proper evidence of compliance, litigation is likely and government fines are very possible, too.
Because of the reputational issues associated with serious legal problems, it is in any organisation’s best interests to enforce extremely diligent reporting across the board.
Whose responsibility is regulatory reporting?
Simply put, every individual is likely to be responsible for at least some regulatory reporting, because every individual is answerable to authority. Whether it’s HMRC for tax; the health and safety board for equipment protocols; or the management team for behavioural expectations, regulatory reporting is an integral part of a functioning society.
If we were being grandiose, we could say regulatory reporting is the means by which we maintain ethical, health and efficiency standards. But being more realistic, regulatory reporting is a necessary element of creating mutual trust and transparency between competing parties and conflicted interests.
It’s also important to emphasise the fact that individuals within an organisation should take responsibility for ensuring that reporting is up to scratch. Oftentimes, regulation exists to stop corruption within organisations, just as much as avoiding irresponsible use of resources or uncompetitive practises.
The importance of improved regulatory reporting
For the vast majority of businesses, regulatory reporting is merely a practical necessity, and is given relatively little weight beyond that. But there are a great many instances where regulation coincides with an organisation’s interest, and it is therefore extremely important for regulatory reporting to be given the weight and attention it deserves.
For example: if you are buying parts from a supplier without proper visibility, you may be unknowingly breaking with regulation and putting your own organisation at risk. This is not simply a hypothetical, as many global businesses have discovered.
Such instances are real and recurring, and in the vast majority of industries new regulation is likely to come into action post-pandemic which will demand extra diligence in their reporting.
Most businesses who incur fines or litigation through poor reporting don’t do so for nefarious reasons – bribery and the like are real, but relatively rare. Instead, they fail because they don’t place a proper emphasis on assembling the information they require or undertaking the processes they need to.