Beyond Fines: 4 Hidden Costs of Compliance Failures

Compliance Monitoring
Marketing Compliance
Regulatory Compliance
7 min
Nitzan Boyarsky

Nitzan Boyarsky

VP Business Development
Beyond Fines: 4 Hidden Costs of Compliance Failures

The world is evolving at a pace unimaginable a few decades ago. Doing business has become easy; all one needs is to make a few clicks. But the overall thinking of how to successfully run a company hasn’t undergone a rapid transformation. The notion of sales and revenue above anything else continues to prevail. Yet good compliance is now a must and it’s about much more than just avoiding lawsuits. It’s the key to growth and gaining a competitive edge.

According to Navex Global's 2023 Definitive Risk & Compliance Benchmark Report, 83% of risk and compliance professionals emphasized that compliance with all relevant laws and regulations was a critical factor in an organization’s decision-making processes.

Without good compliance, expect a knock on the door from regulatory bodies. Even if everything seems to be running smoothly, the lack of focus on compliance can cost millions of dollars.

That’s especially the case in the financial sector. For instance, 2023 marked one of the largest crackdowns on digital payment platforms in history. The FCA imposed fines totaling £52.8 million in 2023.

graph showing the costs of noncompliance

Businesses that want to be profitable, get a steady flow of clients, acquire long-term partnerships and scale must take compliance seriously. In addition to the obvious risks of fines and penalties, here’s a look at just 4 of the hidden costs of compliance failures.

4 Hidden Costs of Noncompliance

  1. Reputational Damage

The advent of the Internet and social media made reputation an invaluable asset to any company, regardless of the industry. It significantly affects customers’ decisions and is essential for establishing trust. A business’s reputation can impact how likely other companies are to partner with or invest in your company. Before signing anything, investors, customers, or partners will analyze your company, and if their due diligence and market research reveal an untowardly history, the business can greatly suffer. To have a good reputation one must have good compliance. Without it, the damage is imminent.

Companies in fintech have famously been hit by reputational damage multiple times. For instance, in 2023, Coinbase reached an $100 million settlement for non-compliance with anti-money laundering (AML) regulations. The fine drained the firm’s capital reserves and slashed its market share. Coinbase also lost clients and suffered distrust from investors, hampering its ability to raise money.

  1. Customer Churn

One of the key metrics determining success is a customers’ lifetime value. If a business has good compliance and a good reputation, clients are more likely to stay for years providing a continuous cash flow and leading to the possibility of market expansion. It’s vital to protect customers’ interests to maintain such a status quo. 

Good compliance is key here. It’s simply a matter of time before problems arise if an organization takes compliance lightly - and numbers do paint a picture. For example, as data breaches became common, a 2022 survey by McKinsey found that 40% of all respondents would stop working with a company when it violated digital trust and 46% would consider switching brands if a company’s data practices were unclear. Consumers are educated - and concerned - and they’re looking for companies with a strong approach to compliance and security.

  1. Employee Morale and Retention

For a business to function properly, its employees must have high morale and confidence. With bad compliance, the risks are higher and can translate into anxiety and stress among team members. If issues come one after another, the company can endure high turnover rates.

In 2023, Wells Fargo found itself in a scandal as the firm was caught creating millions of fake accounts. This has led to fines and greatly affected employee morale as many felt pressured to meet unrealistic expectations and feared forced resignations. As a result, the firm experienced a high employee turnover rate.

  1. Lost Business Opportunities

Suppose a company had struggled in the past but now has good compliance. Learning from mistakes is always beneficial in the long term but in the age where information flows freely and never disappears, the past is impossible to hide. With bad compliance early on, a business can struggle to rebuild their brand. 

In 2023, the crypto platforms suffered a huge blow in the UK - 75% of license applications were refused due to compliance failures. Good compliance is not just a complementary practice but a mandatory one. It builds a foundation so a company can capitalize on every opportunity as they grow.

Avoid the Hidden Costs of Compliance Failures

In today’s world, things are high-paced, and every person and company live under a microscope. No stone goes untouched and (almost) no infractions go undiscovered. To compete, businesses must understand that they’ll get caught sooner or later for cutting corners, blurring the rules or not staying on top of rapidly changing regulations. Because the risks are so high, the only choice is to invest in air-tight compliance. Failure to comply results in fines and penalties in addition to the more hidden costs discussed here such as reputational damage, customer churn, and high employee turnover. 

Good compliance, on the other hand, gives you a competitive edge. It safeguards the healthy state of operations and makes sure the firm has everything in order to ensure it can succeed and scale. As competition intensifies worldwide, it’s important to remember that respect for regulations drives business growth and makes scalability an effortless endeavor. 

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“Training and monitoring of consumer-facing employees will be critical to ensure that an organization is compliant. Technology will support and help the credit and collections industry meet demanding obligations with ease and efficiency, in order to produce the outcomes a regulator wants to see.” 
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Joann Needleman
Joann Needleman
Partner and Leader,
Consumer Financial Services Regulatory & Compliance Group
Clark Hill
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“Our challenge going forward is to position our industry and our companies as desirable places to work. We must implement diversity, equity and inclusion in our workplaces, and get the word out that we have changed. Ask your newest employees for feedback—what would make our workplace desirable for their friends and acquaintances? In this post-pandemic world, getting people to crawl out of their comfortable cocoons may be difficult, but it can be done!”
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Debra Ciskey
Debra Ciskey
Executive VP
CACi 
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“In the last few years, the buzz of the call centers faded away. Now that many people still have the opportunity to continue to work from home, performance directors need to pivot their focus. We need to ensure that the training is effective in this new environment. The move is from hours in a classroom setting to immediate, personalized micro-learning units that enforce the corrective behaviors.” 
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Carla Polito 
Carla Polito 
Senior Director of Litigation Performance
Resurgent Capital
{{qoute-4}}
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“The digital collections movement continues to be in full steam and we are excited to see all of the new technologies that are coming into the ARM industry to help drive enhanced collection performance in a compliant manner. We anticipate additional M&A consolidation globally in the ARM industry, as more digital ARM companies look to accelerate market entry and obtain blue-chip clients and deploy digital-first solutions.” 
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Michael Lamm 
Michael Lamm 
Co-Founder & Managing Partner Corporate Advisory Solutions
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“Digitization will be critically accelerated in 2023. Recovery organizations may be required to furnish consumers’ account data through consumer-selected platforms that will likely be different from organizations’ traditional payment portals. Organizations should start preparing their technology and operations for that contingency now to harness the trend to their benefit.”
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Dave Hanrahan
Dave Hanrahan
Co-Founder & CEO
Kredit
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“Data is the new oil, and extracting data from all sources, especially voice, will be a must-have in 2023. We are in the age of machine learning, and ML runs on data. Getting ALL the data and getting it into one place for the ML to do what it can are the key differences between organizations that will make it and those that don't.” 
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Tim Collins 
Tim Collins 
Chief Compliance Officer
Indebted
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“In 2023, collectors and creditors will be required to work closer together. Reg F oversight requirements have created a new reality of shared compliance responsibility. Servicers and creditors can better collaborate by using new data-driven compliance platforms that provide all parties with critical insights and generate the transparency and trust needed to succeed in a tightening regulatory climate.”
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Nir Laznik
Nir Laznik
Co-Founder & CEO at Sedric.AI
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As Gen Z enters the workforce, you’ll have up to four generations in your agency. Everyone learns differently. Young people learn from TikTok videos, and there is a professional term for this: micro-learning. Such short videos are especially efficient when sent out close to the time when the violation occurred.
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Brit Suttell
Brit Suttell
Shareholder
Barron & Newburger
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The most efficient training systems I’ve seen are those which build surgical, data-driven compliance content and provide agents the exact training they need when they most need it.  This approach avoids wasting time and money on training which does not address the need.  Continuous, role-based training programs that focus on the needs of each individual agent are some of the most efficient and effective I’ve seen.
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John H. Bedard
John H. Bedard
Owner
Bedard Law Group
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“Training is only going to be effective if it's done at or near the time the violation occurred. As agents handle hundreds of calls a week they will not have the capacity to remember particular moments of each consumer interaction. Therefore, effective monitoring will be critical to address the deficiency when it happens, in order to remediate quickly so that it does not become a systemic problem going forward.” 
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Joann Needleman
Joann Needleman
Partner and Leader,
Consumer Financial Services Regulatory & Compliance Group
Clark Hill

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