For small and medium enterprises (SMEs) in the UK, compliance may not be a priority and can easily be overlooked – however, it shouldn’t be. Be it data protection or financial and health regulations, compliance plays an intricate part in keeping a business safe and trustworthy.
As regulations advance alongside evolving customer expectations, non-compliance can lead to severe penalties, reputatation loss or even halting operations. Compliance officers are becoming a crucial aspect to many SMEs across the UK as they help businesses ensure compliance with regulations.
How Critical is Compliance For SMEs?
It is no longer about checking legal obligations for compliance. For SMEs, it can foster trust with partners, build credibility with clients, enhance operational efficiency and even unlock funding.
According to the UK Government’s Office for Standards in Product Safety and Compliance, a lack of compliance raises major obstacles in the growth potential of smaller governement-backed firms. Remaining compliant ensures legislation requirements are met, but more importantly a strong foundation towards sustaining operations in years to come.
What Are Common Compliance Issues for Small Businesses?
For many SMEs, blurred areas of responsibility, messy compliance processes, and a lack of time or expertise very often define their organisation. It is easy to overlook changes to the law or to assume that some rules don’t apply to smaller operations.
For instance, some businesses may believe that the UK GDPR and data protection requirements only exist for large entities. Some may also lack adequate health and safety, employee training, or even financial reporting. Gaps in compliance processes do exist without a defined strategy, which can quickly lead to fines, audits, or even lawsuits.
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When to Invest in a Compliance Officer?
If there are business expansions, new market placement, more sensitive data handling, or strict regulations in certain industries, it is a strong point to start considering hiring a compliance officer, even on part time basis or outsourced. This is necessary to track legal developments, develop relevant governance policies, and much more.
7 Common Compliance Gaps That SMEs Miss
Small businesses may miss key compliance aspects within their businesses, potentially leading to lost trust with their clientele or penalties. Some common compliance gaps include changes in regulations, inadequate staff training, lack of documentation to present during an audit, and more:
1. Unaware of Change In Regulations
UK laws and regulations on employment, taxes, data protections and more are often changing, causing havoc on small businesses that don’t have a specialised compliance officer onsite. With these regular changes occurring, it is important to have someone dedicated to navigating these changes. For companies within certain industries, such as healthcare, e-commerce or finance, there are often heavier fines and penalties- making it crucial to employ a qualified compliance expert.
2. Inadequate Staff Training
Training is often sidelined especially in small to medium-sized enterprises where employees juggle multiple positions. Domains like GDPR, anti-money laundering (AML), or health and safety need thorough training to ensure that employees do not put the company in a precarious position. This training should be continuous and ensure constant reviewing.
3. Data Privacy and Security Lapses
UK businesses should ensure compliance within the UK GDPR (even after Brexit). Many SMEs lack policies for dealing with proper encryption, access controls, and data handling. One breach can lead to fines from the Information Commissioner’s Office (ICO) and the loss of customer trust.
4. Documentation Gaps (During an Audit)
Keeping consolidated logs of compliance such as maintaining logs of training conducted, risk assessments, or policy reviews done may be foreign concept to some SMEs, however, in the case of an audit or inspection, the absence of supporting documents can be highly detrimental even when you are compliant.
5. Manual Implementations
Many SMEs continue to utilise paper records and manual spreadsheets. These have the potential for human error and are often difficult to track over extended periods of time. Automated compliance tools help eliminate issues and streamline processes while maintaining adequate audit trails, all of which enable easier compliance as you scale.
6. Lack of Internal Audits
Regular self-assessments are critical to identifying ongoing violations of processes, policies, and frameworks but due to lack of time or resources, SMEs may overlook the importance of this – becoming a less frequent occurrence.
7. Poor Risk Management Policies
Many SMEs use an informal approach when it comes to the assessment and management of risk. Without having a defined process, it’s easier to ignore things like supply chain weaknesses, cybersecurity issues, and regulatory requirements on environmental policies. Having a good risk framework should integrate your compliance strategy to prioritise essential priorities.