Introduction
Compliance issues have become a critical business challenge, with cybersecurity threats ranking as the most significant concern for 47% of organizations. Furthermore, fewer than one-third of business leaders globally feel ‘very prepared’ to handle the range of challenges they may face in 2025. This lack of preparedness is particularly concerning as we approach what experts are calling the “Year of Regulatory Shift”.
When we examine compliance risk examples across industries, the scope is staggering. From antitrust concerns in mergers and acquisitions to consumer protection issues in social media marketing, modern compliance encompasses far more than traditional regulatory adherence. In fact, companies must now navigate everything from predictive scheduling regulations to worker classification scrutiny. Additionally, with global insured losses from natural catastrophes exceeding $100 billion in 2024, businesses face mounting pressure to address environmental compliance as well. Throughout this article, we’ll explore these complex challenges and provide practical guidance for business owners looking to strengthen their compliance frameworks.
Understanding the Scope of Modern Compliance
The scope of modern compliance has expanded dramatically beyond basic regulatory adherence. A compliance issue occurs whenever an organization fails to meet applicable laws, regulations, industry standards, or internal policies. However, today’s definition encompasses everything from minor infractions to serious violations that can result in fines, legal action, and significant reputational damage.
What does ‘compliance issue’ mean today?
Modern compliance issues span a complex landscape of requirements that organizations must navigate. Compliance now exists in two primary forms: corporate compliance, which refers to internal rules and policies an organization establishes; and regulatory compliance, which pertains to externally imposed laws and regulations.
This distinction is crucial as businesses face “an ever-increasing number of regulations that require companies to be vigilant about maintaining a full understanding of their regulatory requirements”. Consequently, the concept of compliance has shifted from a static, check-the-box activity to “a dynamic, technology-driven domain crucial for maintaining trust, securing sensitive data, and aligning with regulations across industries”.
Organizations now deal with compliance frameworks across multiple domains simultaneously, including security compliance, IT risk management, vendor risk management, and information security management systems. This expanding scope makes understanding compliance issues essential for business continuity.
Why compliance is no longer just a legal concern
Compliance has transcended its traditional role as a legal safeguard. According to a recent AIIM survey, reputational risk was cited as the #1 driver for regulatory compliance—twice as significant a motivator as avoiding fines and penalties. This shift reflects how compliance has become a strategic business concern.
The financial implications are equally compelling. Studies show that non-compliance costs approximately 2.65 times more than maintaining compliance. For data privacy specifically, the average cost of compliance is $295.33 million per organization, whereas non-compliance-related issues average $793.18 million.
Beyond financial considerations, effective compliance programs deliver multiple business benefits:
- Improved ability to attract and retain high-quality employees
- Enhanced decision-making through better information governance
- Stronger stakeholder trust and customer loyalty
- More effective supply chain management
In essence, compliance has evolved into “a cornerstone of ethical business practice” that influences every aspect of operations.
Examples of compliance risks across industries
Compliance risks manifest differently across sectors, though certain categories appear consistently. In financial services, institutions face particular challenges with data security controls, network security, access management, and malware threats. In fact, a 2022 Infosec survey indicated that sharing sensitive information over unsecured networks remains one of the most common compliance risks in financial services.
Meanwhile, healthcare organizations contend with protected health information (PHI) security requirements under HIPAA, where the majority of data breaches can be attributed to gaps in required compliance controls.
Other prevalent compliance risk examples include:
- Environmental regulations that govern pollution, waste disposal, and carbon emissions
- Workplace safety protocols enforced by authorities like OSHA
- Data protection requirements under frameworks like GDPR and CCPA
- Supply chain due diligence and modern slavery prevention
As one compliance expert notes, “to successfully traverse complicated regulatory environments and gain the trust of stakeholders, businesses must shift their focus from compliance as a safeguard against penalties to proactive, technology-enabled strategies”.
AI, Automation, and the Rise of Digital Compliance Risks
As technology reshapes business operations, artificial intelligence and automation introduce novel compliance challenges that extend well beyond traditional regulatory concerns. Organizations leveraging these technologies face unique risks that demand specialized oversight and governance structures.
The compliance risks of generative AI
Generative AI (GenAI) creates distinctive compliance vulnerabilities that organizations must proactively address. Primarily, data privacy presents a significant challenge as GenAI models utilize massive amounts of information that remains vulnerable to unauthorized access. Employees entering sensitive data into public generative AI models represents a growing problem, as these systems may store input information indefinitely and use it to train other models.
Without proper governance, generative AI can create or amplify legal risks through lax data security measures that potentially expose trade secrets, proprietary information, and customer data. Furthermore, inadequate review of AI outputs leads to several compliance issues:
- Factual inaccuracies and “hallucinations” on financial facts
- Compliance violations and breach of contract risks
- Copyright infringement and intellectual property concerns
- Erroneous fraud alerts and faulty internal investigations
The risks extend further into strategic compliance failures through non-compliance with ESG standards, creating societal and reputational hazards.
Bias, transparency, and explainability in AI systems
The “black box” nature of AI systems presents fundamental compliance challenges. Stakeholders, including regulators, rightfully demand explanations for how decisions are made, especially when these decisions carry substantial legal implications. Unfortunately, the inherent complexity of many AI models makes providing necessary transparency difficult.
Explainability has become crucial for regulatory compliance, particularly in high-stakes fields like government, finance, and healthcare. This is reflected in emerging regulations like the EU AI Act, which implements strict governance requirements and transparency obligations for specific types of AI.
For organizations to maintain compliance, AI systems must provide clear rationales for decisions. This transparency builds trust and allows stakeholders to hold systems accountable. Despite these requirements, explainability remains technically challenging, especially with complex models like deep learning networks that rely on vast parameters and intricate internal representations.
How to build a trusted AI governance framework
Developing a robust AI governance framework begins with establishing leadership accountability within the organizational structure. Successful frameworks require principles, policies, and standards developed specifically around AI design and usage.
Effective AI governance isn’t the responsibility of a single department—it requires cross-functional collaboration across executive leadership, legal teams, engineers, cybersecurity personnel, and risk departments. This collaborative approach ensures AI systems operate ethically, securely, and in compliance with regulations.
The foundation of trusted AI governance includes continuous monitoring and validation. Business leaders need confidence that AI models perform as expected and align with regulatory requirements. This involves implementing:
- Structured risk assessment frameworks that quantify potential threats
- AI model validation techniques including stress testing and bias analysis
- Automated risk assessments to scan for vulnerabilities
Thorough documentation creates an audit trail that supports regulatory reporting and model accountability. Organizations should maintain detailed records of model development, performance metrics, decision logs, and compliance checks.
Finally, continuous evaluation ensures sustainable and responsible AI deployment. As one expert notes, “Trustworthy AI does not emerge coincidentally. It takes purposeful attention and effective governance”.
Cybersecurity and Data Privacy Challenges
The financial impact of cybersecurity breaches has positioned data security as a cornerstone of modern compliance programs. With the average cost of a data breach reaching an all-time high of INR 375.49 million in 2023—a 15.3% increase since 2020—organizations are recognizing that cybersecurity isn’t merely a technical concern but a critical compliance obligation.
Why cybersecurity is now a compliance issue
Cybersecurity has evolved from an IT department responsibility into a mandatory compliance requirement across industries. The stakes for non-compliance are exceptionally high—beyond financial penalties, organizations face litigation costs that may reach millions of dollars. Moreover, when compliance failures contribute to cyberattacks or data breaches, the consequences extend to customer confidence loss, stock price drops, and significant reputational damage.
The increasing regulatory landscape has complicated matters significantly. From Europe’s GDPR to California’s Consumer Privacy Act, alongside sector-specific regulations like PCI DSS and HIPAA, Chief Information Security Officers must navigate a complex web of cybersecurity mandates. Subsequently, businesses are establishing separate security operations centers (SOCs) to ensure security controls are properly implemented, audited, and reported to regulatory agencies.
Third-party risk management and vendor oversight
Organizations face substantial vulnerability through their external business relationships. Without proper vendor oversight, third parties can become the weakest link in an organization’s security posture. Essentially, third-party risk emerges from the potential for an organization to suffer data breaches or operational impacts via connections to external entities.
A robust third-party risk management framework requires:
- Quantifying inherent risks for all third parties through criteria like data exposure, business criticality, and regulatory considerations
- Placing suppliers into priority tiers based on risk scores
- Implementing continuous monitoring rather than point-in-time assessments
- Centralizing vendor contract management to enforce important security clauses
Organizations must recognize that not every third party presents equal risk—an office supplies vendor poses significantly less risk than a SaaS provider processing customer payments.
Incident response and breach notification rules
The mean time to identify and contain a security breach stands at 277 days, yet regulatory requirements demand much faster response times. Notably, different jurisdictions impose varying notification timelines—some requiring disclosure within as little as 72 hours of breach detection.
Under the EU’s GDPR, organizations must notify the lead supervisory Data Protection Authority within 72 hours. Alternatively, the Indian Computer Emergency Response Team (CERT-In) requires reporting within six hours of detecting incidents. Within the United States, all states have enacted legislation requiring notification of security breaches involving personal information.
An effective incident response strategy must include:
- Immediate notification of law enforcement
- Communication with affected businesses
- Direct notification to affected individuals
For incidents involving electronic personal health records, additional requirements under the Health Breach Notification Rule or HIPAA Breach Notification Rule may apply, including notifying the FTC and potentially the media.
Environmental, Social, and Governance (ESG) Pressures
ESG regulations are rapidly evolving, creating unprecedented compliance challenges for businesses worldwide. The regulatory landscape has shifted from voluntary frameworks to mandatory requirements with significant penalties for non-compliance.
New ESG reporting requirements in the EU and UK
The European Union has established comprehensive sustainability reporting regulations affecting thousands of companies, including multinationals headquartered outside the EU. The Corporate Sustainability Reporting Directive (CSRD), adopted in 2022, mandates detailed ESG disclosures using standardized European Sustainability Reporting Standards. Currently, the EU is proposing to reduce the scope of CSRD by 80%, applying only to companies with more than 1,000 employees.
Alongside CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), adopted in 2024, requires companies to identify and address human rights and environmental risks throughout their operations and value chains. Approximately 900 non-EU companies will need to comply with CSDDD, including many US-based multinationals.
In the UK, similar requirements are emerging, including the Sustainability Disclosure Requirements (SDR) and the developing UK Green Taxonomy.
Double materiality and supply chain due diligence
The concept of “double materiality” fundamentally reshapes compliance approaches. Unlike traditional financial reporting, double materiality requires companies to assess both:
- Financial materiality: How ESG factors impact a company’s financial performance
- Impact materiality: How the company affects environmental and social factors
This assessment process requires companies to conduct thorough due diligence across their entire value chain. Following a double materiality assessment, companies must report on relevant sustainability matters including climate impact, pollution, biodiversity, resource use, workforce conditions, and business conduct.
How climate change is reshaping compliance
Climate change has transformed from an environmental concern into a compliance necessity. Increasingly, government authorities worldwide are publishing ESG regulations addressing climate change, human rights, and diversity. According to PRI Association, nearly one thousand ESG-related regulations have been issued for the investment industry alone.
Regulatory bodies are becoming more proactive in enforcing ESG standards. Companies now face greater scrutiny regarding promotional practices, with authorities actively addressing “greenwashing” – misleading marketing that falsely portrays products as environmentally friendly.
To manage these challenges, organizations must implement robust internal controls, standardized data collection, and auditable ESG metrics. Many companies have established cross-functional ESG steering committees at the C-Suite level to ensure alignment on compliance timelines and materiality assessments.
Workplace Culture, Ethics, and Human Rights
Human rights violations and ethical lapses represent serious compliance risks that extend beyond regulatory penalties into reputational damage and operational disruption. Businesses face increasing scrutiny over their workplace practices and supply chain management as stakeholders demand greater accountability.
Modern slavery and forced labor in supply chains
An estimated 27.6 million people worldwide remain trapped in forced labor, with 63% exploited in the private economy. Despite corporate pledges to eliminate exploitative practices, modern slavery persists across global supply chains, generating approximately $236 billion in illegal profits annually.
Recent investigations have uncovered children as young as eight working in hazardous conditions on plantations supplying major coffee brands. Similarly, migrant children have been found working illegally in U.S. supply chains, prompting compliance professionals to conduct more thorough risk assessments.
International standards like the UN Guiding Principles on Business and Human Rights establish that companies must respect human rights throughout their operations, regardless of size or sector. This requires implementing robust human rights due diligence processes to identify, prevent, and mitigate adverse impacts.
The role of DEI in compliance frameworks
Diversity, Equity, and Inclusion (DEI) initiatives have become foundational elements of ethical corporate culture, with tangible financial implications. Indeed, a quarter of U.S. shoppers abandon their favorite stores over political stances such as DEI walkbacks. Target’s retreat from DEI initiatives reportedly cost the retailer over INR 1012.57 billion in market value.
Although typically managed by HR departments, DEI is increasingly recognized as essential to compliance frameworks. Evidence demonstrates that DEI programs help prevent discrimination claims while fostering ethical workplace cultures.
Preventing fraud and misconduct internally
Internal fraud and theft remain persistent compliance challenges, with three out of four organizations reporting fraud experiences. Effective prevention requires:
- Segregation of duties across financial transactions
- Regular bank account reconciliation by independent persons
- Protection of assets through inventory controls and usage logs
- Written fiscal policies with board approval
- Whistleblower reporting mechanisms
Organizations that consistently maintain and update their internal controls experience significant decreases in fraud and professional misconduct. Properly implemented controls correlate directly with reduced levels of fraudulent activity, especially within small and medium enterprises.
