Compliance has long been a daunting task for businesses worldwide. From tax filings, financial reports, business registration, and more: there is no doubt that all of these have caused headaches to business owners, accountants, and auditors every fiscal year. In fact, some people have started viewing these measures negatively, as exemplified by the quote, “Compliance is like a game of chess, except there are no winners, only people who don’t get fined.”
This begs the question: can we convince business owners that compliance can be a catalyst for positive change? Beyond avoiding fines and penalties, compliance brings about a myriad of benefits that can significantly impact a business's success. Through adhering to legal and regulatory requirements, businesses can enhance their reputation, mitigate risks, improve access to financing, expand into new markets, and foster a more responsible corporate culture.
How do we shift this mindset from mere compliance to a strategic advantage? The answer lies in recognizing that compliance is not just about avoiding penalties; it's about building a strong foundation for sustainable growth. Embedding compliance into the core values and operations of a business allows companies to create a culture of integrity and accountability.
However, it’s also crucial for regulatory bodies to play a role in making compliance easier and more beneficial for businesses. This is where initiatives such as the Enhanced Compliance Incentive Plan (ECIP) of the Securities and Exchange Commission (SEC) demonstrate the potential for such policies to positively impact the business landscape.
Small Steps, Big Impact
Since the release of SEC’s Amnesty Program in 2023, there has been steady progress towards encouraging regulatory compliance. Extending an olive branch to non-compliant corporations, the program provided an opportunity to rectify violations with reduced penalties. This Amnesty Program was a significant and successful first step towards making compliance easier, with 81,700 companies availing of the SEC Amnesty Program in 2023. This, along with the push for digitalization through the Electronic Filing and Submission Tool (EFAST), has significantly streamlined the compliance process and made it more accessible for businesses of all sizes.
After the Amnesty Program ended in 2023, the SEC started imposing higher revised fines and penalties through SEC Memorandum Circular (MC) No. 06, series of 2024 to encourage strict and habitual compliance with reportorial obligations and good corporate housekeeping. Notably, this was the latest modification to the schedule of fines and penalties since the SEC guidelines on the imposition of fines and penalties for non-compliance with reportorial requirements released in July 2002, 22 years ago.
The latest breakthrough towards pushing businesses to embrace a new mindset is the rollout of the Enhanced Compliance Incentive Plan (ECIP) by the SEC. Through the release of SEC MC 13 -2024 on August 30, 2024, the SEC once again affords non-compliant corporations another opportunity to remedy their violations at lower fees. Through this program, non-compliant corporations, including those placed under “delinquent” status, may settle their unassessed or unpaid fines and penalties for a reduced fee of P20,000. On the other hand, suspended and revoked corporations may settle only 50 percent of their assessed fines and pay the petition fee of P3,060. This is provided that applicants do their part and submit the corresponding supporting documents during the duration of September 2 – November 20, 2024 only.
The ECIP offers incentives for compliance, demonstrating that it is not only a regulatory requirement but also a strategic opportunity. In fact, the SEC itself, as a regulating entity, stated that they “continuously desire to afford businesses an opportunity to be in good standing relative to their reportorial requirements.” Allowing non-compliant businesses to restore their standing provides a pathway for redemption and encourages a more proactive approach to compliance.
If compliance were easy, there is no doubt that most businesses would choose to adhere to regulations without hesitation. However, the reality is that compliance can be complex, time-consuming, and costly. For businesses that fail to comply the first time, the consequences can be severe, creating a domino effect that makes it even harder to achieve compliance in the future.
In contrast, continuous compliance creates a positive ripple effect. Establishing a foundation of strong compliance not only creates a more streamlined and efficient operation, but also eases the burden of adapting to future regulatory changes. This makes it easier for them to integrate with partners, suppliers, and customers, fostering stronger relationships and driving growth.
The ECIP serves as a valuable tool in this journey, sending a clear message that these regulations aren’t in place to make conducting business more difficult, but rather a framework for a better business environment. This demonstrates the government’s commitment to supporting businesses while also ensuring that they adhere to important regulatory standards.
Cultivating a Culture of Compliance
With the SEC making compliance easier, it also falls upon businesses to take proactive steps to embed compliance into their corporate culture. According to a Forbes article titled "Creating a Culture of Compliance: Why All Successful Businesses Must Do This and Where to Begin," fostering a culture of compliance requires a top-down commitment from leadership.
As a Partner for Audit & Assurance for P&A Grant Thornton, a professional services firm, I've witnessed firsthand how businesses that prioritize compliance can achieve significant benefits. Our role goes beyond simply helping our clients comply with requirements: it also involves providing strategic guidance and support to help them build a strong compliance culture.
This includes setting clear expectations, providing adequate training, and implementing effective compliance programs. Additionally, businesses should encourage open communication and a culture of reporting misconduct, ensuring that employees feel empowered to raise concerns without fear of retaliation.
Adhering to the ever-changing regulatory landscape will come naturally when compliance is integrated into the fabric of the organization. Cultivating a culture of compliance allows employees to understand and adhere to compliance standards, they can work more effectively, identify potential issues early on, and make informed decisions that align with the company's legal and regulatory obligations.
Moving Forward
With these milestones, the future of corporate compliance in the Philippines looks promising. I commend the SEC for these initiatives that make doing business in the country easier, faster, and more convenient. As businesses continue to evolve and adapt to a changing regulatory landscape, it is essential that they prioritize compliance not only for compliance’s sake, but as a strategic imperative. Let us play our part in ushering in this new era for corporate compliance—one where it isn’t seen as a hassle, but rather a necessary cornerstone for success.
As published in The Manila Times, dated 18 September 2024
