We have entered a new regulatory environment, one that is intended to change behaviors in addition to capturing information and collecting fees. Such regulation-mandated change is difficult to navigate (not only is it change, but the mandate comes from outside), but it may also yield the biggest competitive advantage if successfully and proactively implemented, according to 'Business Transformation and the Regulatory Environment,' a report from KPMG and Forbes Insights.
The two sectors currently most affected by regulatory change in the United States are healthcare and financial services. In other industries, such as communications or energy, transformation may be triggered by other primary factors, but it has a strong regulatory component. These new regulations often demand complex changes, but they also create a big opportunity to spearhead changes in other areas of business for those companies that are able to gain a proactive view of the current and upcoming regulatory landscape.
The energy and effort devoted to the transformation triggered by regulatory requirements should be utilized to improve business as a whole. “Regulations are creating new requirements. Smart companies are using these requirements to transform their businesses beyond compliance, and using this forward-looking view and the outcomes of their regulatory efforts as sources of competitive advantage,” says Mike Nolan, Global Partner in Charge, Risk Consulting, KPMG.
It is imperative to recognize which regulations have the potential to be used to catapult a company to a new level through a transformation, either on a company-wide or a functional level. Nolan outlines three different approaches that companies currently employ, depending on the industry, the regulations and/or the companies’ approaches to incorporating them:
Start studying Regulatory Environment of US Healthcare. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Similarly, events and regulatory responses occurring in one jurisdiction often have an impact in another. Failing to recognize the potential ripple effect can have costly financial, operational and reputational consequences upon the whole organization, its leaders and its stakeholders. Canadian Capital Markets Regulatory Environment.
Comply: approach based purely on compliance with the regulations without making any transformative changes to business strategy or operations. This approach creates burdens on efficiency and profits, without creating much direct company financial or operational benefit from regulatory compliance.
Compete: approach based on efficient incorporation of compliance, aimed at achieving parity with direct competitors. This approach is often employed in the healthcare provider space, with its razor-thin margins. Competitiveness in this case is based on keeping up with rivals in terms of efficiencies in complying with ACA, HIPPA or other laws. This approach ultimately aims to diminish the burden of compliance with regulations but is not generally transformative at an enterprise level.
In both of the previous approaches it is especially important to recognize that what’s different about transformations triggered primarily by the regulatory environment is the need to understand the regulations themselves and how they will be interpreted, says Todd Lohr, managing director, U.S. Transformation Enablement Leader, KPMG. “You need to build a solution flexible enough to accommodate future changes and different scenarios as they evolve,” he says.
Catapult: approach based on using the information necessary to comply with new regulations to achieve transformation that improves business operations, resulting in competitive advantage. As an example, banks are at a unique crossroads. The current environment—marked by intensified regulatory attention and increasing costs for noncompliance—creates an opportunity for banks to use the new heightened regulatory awareness to shift away from reactive remediation and to proactively adopt a culture of compliance.
By embracing the underlying spirit of regulatory rules and standards on an enterprise-wide basis, including its products, services, operating models, affiliates and third-party relationships, and refocusing corporate strategies toward customer needs, banks can realize fewer complaints, lessened attrition, improved organic growth and stronger economic return.
Another example of achieving competitive advantage by adapting to the regulatory environment is a healthcare company that aimed to comply with the medical device excise tax. After gathering new data points required for compliance, the company undertook further analysis of this new data, which revealed vast disparities in prices charged for the devices in the same region. The company then proceeded to reevaluate its product profitability, pricing strategy, sales force performance and motivation, as well as marketing relationships, thus opening the door to dramatic performance opportunities.
The key and common element to the success of a regulatory transformation is data. New regulations require that companies gather new data points, for which many companies are not well set up. But for this to be transformative, companies must also be capable of analyzing the new data beyond compliance, drawing conclusions about how to improve business based on this new, rich trove of information. This will require new capabilities, focus, and commitment for many companies.
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We have entered a new regulatory environment, one that is intended to change behaviors in addition to capturing information and collecting fees. Such regulation-mandated change is difficult to navigate (not only is it change, but the mandate comes from outside), but it may also yield the biggest competitive advantage if successfully and proactively implemented, according to 'Business Transformation and the Regulatory Environment,' a report from KPMG and Forbes Insights.
The two sectors currently most affected by regulatory change in the United States are healthcare and financial services. In other industries, such as communications or energy, transformation may be triggered by other primary factors, but it has a strong regulatory component. These new regulations often demand complex changes, but they also create a big opportunity to spearhead changes in other areas of business for those companies that are able to gain a proactive view of the current and upcoming regulatory landscape.
The energy and effort devoted to the transformation triggered by regulatory requirements should be utilized to improve business as a whole. “Regulations are creating new requirements. Smart companies are using these requirements to transform their businesses beyond compliance, and using this forward-looking view and the outcomes of their regulatory efforts as sources of competitive advantage,” says Mike Nolan, Global Partner in Charge, Risk Consulting, KPMG.
It is imperative to recognize which regulations have the potential to be used to catapult a company to a new level through a transformation, either on a company-wide or a functional level. Nolan outlines three different approaches that companies currently employ, depending on the industry, the regulations and/or the companies’ approaches to incorporating them:
Comply: approach based purely on compliance with the regulations without making any transformative changes to business strategy or operations. This approach creates burdens on efficiency and profits, without creating much direct company financial or operational benefit from regulatory compliance.
Compete: approach based on efficient incorporation of compliance, aimed at achieving parity with direct competitors. This approach is often employed in the healthcare provider space, with its razor-thin margins. Competitiveness in this case is based on keeping up with rivals in terms of efficiencies in complying with ACA, HIPPA or other laws. This approach ultimately aims to diminish the burden of compliance with regulations but is not generally transformative at an enterprise level.
In both of the previous approaches it is especially important to recognize that what’s different about transformations triggered primarily by the regulatory environment is the need to understand the regulations themselves and how they will be interpreted, says Todd Lohr, managing director, U.S. Transformation Enablement Leader, KPMG. “You need to build a solution flexible enough to accommodate future changes and different scenarios as they evolve,” he says.
Catapult: approach based on using the information necessary to comply with new regulations to achieve transformation that improves business operations, resulting in competitive advantage. As an example, banks are at a unique crossroads. The current environment—marked by intensified regulatory attention and increasing costs for noncompliance—creates an opportunity for banks to use the new heightened regulatory awareness to shift away from reactive remediation and to proactively adopt a culture of compliance.
By embracing the underlying spirit of regulatory rules and standards on an enterprise-wide basis, including its products, services, operating models, affiliates and third-party relationships, and refocusing corporate strategies toward customer needs, banks can realize fewer complaints, lessened attrition, improved organic growth and stronger economic return.
Another example of achieving competitive advantage by adapting to the regulatory environment is a healthcare company that aimed to comply with the medical device excise tax. After gathering new data points required for compliance, the company undertook further analysis of this new data, which revealed vast disparities in prices charged for the devices in the same region. The company then proceeded to reevaluate its product profitability, pricing strategy, sales force performance and motivation, as well as marketing relationships, thus opening the door to dramatic performance opportunities.
The key and common element to the success of a regulatory transformation is data. New regulations require that companies gather new data points, for which many companies are not well set up. But for this to be transformative, companies must also be capable of analyzing the new data beyond compliance, drawing conclusions about how to improve business based on this new, rich trove of information. This will require new capabilities, focus, and commitment for many companies.
Regulatory risk is the risk that a change in laws and regulations will materially impact a security, business, sector, or market. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of an investment, or change the competitive landscape.
Breaking Down Regulatory Risk
Financial institutions face regulatory risk with respect to capital requirements, services, and products they are allowed to engage in, and disclosure practices. Salient to investors that brokers serve would be a change in the amount of margin that investment accounts can possess. If margin requirements are tightened, the impact on the stock market could be material, as this would force investors to either meet the new margin requirements or sell off their margined positions.
Example of Regulatory Risk
For example, the utilities are heavily regulated in the way they operate, including the quality of infrastructure and the amount that can be charged to customers. For this reason, these companies face a regulatory risk that can arise from events—such as a change in the rates they can charge—that may make operating the business more difficult.
A plethora of regulatory risk examples exist. One of the best places to directly learn about this type of risk to a particular company is its annual filing (or 10-K). Each 10-K filing contains a section on material risks to company operations. Regulatory risks customarily are mentioned—and sometimes discussed in great detail, as is the case for the drug industry, for example.