According to GlobalSCAPE, the average price of noncompliance is 2.71 times higher than that of compliance. The consequences of noncompliance have become a significant concern today. Failing to adhere to cyber security can go beyond reputational damage and can have devastating repercussions for your business.
If you’re a business owner, understanding these consequences is not only imperative in safeguarding your data but also in fostering an effective cyber security posture for demonstrating credibility and trust among your clientele.
Lack of compliance means that your company is not adhering to the rules and regulations set forth by industry standards for cybersecurity best practices. This blog will elaborate on the importance of following such regulations and the penalties you will face if you’re non-compliant.
Table of Content
What does non-compliance mean?
Non-compliance is the indication that an organization is not, in part or wholly, compliant with certain cybersecurity policies, compliance requirements, or best practices. This can leave the organization in a negative light and can cause bad brand value, inability to secure investments, high employee churn, and increased capital cost.
Ignoring security rules makes it easy for hackers to attack systems and data. By being non-compliant, companies leave themselves wide open to data breaches, hacks, and cyber attacks. And this can cause irreparable damage and even lead to complete loss of business. On the other hand, doing the hard work of following compliance requirements comes with a significant payoff. It keeps your data locked down tight and your business healthy.
What are the consequences of non-compliance?
Businesses that don’t comply with regulations are at serious risk. They could face security breaches, loss of productivity, and reputational damage. Non-compliance might also lead to financial penalties, loss of clientele, disruptions in operations, and even regional lockouts. It’s crucial for businesses to follow the rules to avoid these problems.
Consequences of non-compliance:
- Fines and penalties
- Prison time
- Reputational damage
- Disrupted business activities
- Legal proceedings
- Loss of revenue
1. Fines and penalties
Regulators drop huge fines on non-compliant companies. GDPR fines alone can cost 4% of revenue. There are also investigational costs, legal fees, breach fixes, and payouts to affected customers. Depending on the violation, fines can really stack up.
2. Prison time
For major compliance failures, individuals can land behind bars for months or years. For example, a HIPAA violation where the organization knowingly obtained or disclosed personal health information can lead to imprisonment of up to one year.
3. Reputational damage
Non-compliance can quickly cause customers to lose trust and loyalty. People will look for alternative solutions and choose those that take security and compliance more seriously.
4. Disrupted business activities
Missing out on crucial cybersecurity strategies and improper implementation of compliance frameworks puts you behind competitors. Data breaches cause downtime, sinking productivity and profits. For example, in major violations, PCI DSS non-compliance can lead to businesses losing their license to process credit cards.
5. Legal proceedings
Apart from fines and penalties, when businesses do not comply with regulatory requirements, other parties can decide to take legal action against the senior management of the company. These cases can sometimes continue for a long time and cause business interruption.
6. Loss of revenue
The amount of money to be paid during settlements for cases of non-compliance can cause businesses to lose their revenue. For example, a Children’s Medical Center in Dallas suffered a loss of $3.2 million due to a HIPAA violation. It happened because the healthcare facility did not take adequate security measures to protect health information.
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Penalties for non-compliance
The penalties for non-compliance vary from one security framework or regulatory standard to another. You can face financial penalties, temporary suspension of business activities, lawsuits, and more.
Below is an overview of non-compliance penalties for different popular compliance frameworks.
1. Penalties for GDPR non-compliance
You are required to pay up to €10 million or 2% of the company’s worldwide annual revenue, whichever is higher in case of less severe non-compliance instances (such as poor maintenance of data records, not reporting data breaches, failing to appoint a DPO, and so on).
In case of more severe violations such as failure to get consent from customers, transferring sensitive data without proper safeguards, not following the basic data processing principles, and so on, you are required to pay up to €20 million or 4% of the company’s worldwide annual revenue, whichever is higher.
2. Penalties for HIPAA non-compliance
The civil/monetary penalties under HIPAA can be for different reasons—for violations where the entity was unaware of HIPAA non-compliance, fines can range from a minimum of $127 per year up to $63,000 per year.
When the violation is due to reasonable cause and willful neglect is not demonstrated, fines can range from a minimum of $1,000 per year up to $100,000 per year.
In cases where willful neglect led to the violation but corrective action was taken promptly, fines can range from a minimum of $10,000 per year up to $250,000 per year.
For violations involving willful neglect where corrective action was not undertaken, fines can range from a minimum of $50,000 per year up to $1.5 million per year.
Moreover, there are criminal penalties if entities gain unauthorized access to PHI or knowingly expose sensitive data (intentional noncompliance). For such violations, there is a monetary fine of up to $250,000 and up to 10 years in jail.
3. Penalties for PCI DSS non-compliance
You will have to pay a penalty of $5000-$10000/per month if you don’t comply with PCI DSS requirements. The exact penalty ranges from card companies and banks, based on the number of transactions and volume of clients.
Higher volumes mean more fines. In case of severe violations, organizations can attract fines of up to $500,000, which is way higher than the cost of compliance.
Ways to minimize consequences of non-compliance
It’s a well-established fact that non-compliance lands companies in serious trouble. As technology and infrastructure become more and more complex, organizations are trying to find ways to get compliant quickly and avoid the adverse impact of non-compliance. But there is no one single process that can help with this. Overall, organizations are looking for ways to strengthen their security posture as well as adopt a security-first approach. But here are three tips to meet compliance requirements and minimize hefty penalties.
1. Establish a comprehensive compliance program
To start, thoroughly research the specific regulations, laws, and standards applicable to your business. Draft comprehensive policies or change existing ones to meet the compliance requirements. Appoint dedicated compliance managers and provide regular training to ensure all employees are aligned with new policies or changes.
Regularly carry out internal audits and gap analysis to ensure compliance with required standards. In case of non-conformities, have corrective action plans ready to ensure sufficient remediation and prevent future non-compliance.
2. Monitor compliance changes and security trends
Compliance is an ongoing effort. Regulations and standards evolve from time to time, so remain proactive in industry groups for updates. This helps you ensure that you are not missing out on any new compliance requirements.
You can also talk to peers and other industry experts to learn about the latest compliance practices from their experiences. Work closely with legal counsel to navigate complex compliance landscapes. Staying updated is crucial for avoiding non-compliance consequences.
3. Implement a compliance automation solution
Implementing a compliance automation solution can help you stay on top of your compliance program to refrain from non-compliance penalties. Automate compliance tracking and reporting with a dedicated compliance solution to streamline processes. Choose a solution with data analytics to uncover trends and identify risks proactively. Maintain organized documentation of policies, audits, and corrective actions for transparency. With the right technology, compliance becomes easier to monitor and maintain.
The Sprinto Advantage: Sprinto’s compliance dashboard provides you with real-time visibility into your security posture and compliance health. You can seamlessly streamline different compliance programs and steer clear of non-compliance penalties.
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Closing Thoughts
It is important to follow industry standards and regulatory requirements for maintaining a secure environment and protecting sensitive information. This not only helps you minimize data breaches but also saves you from hefty fines and penalties. As discussed above, the risk of noncompliance is high. So, adopting an organized approach to non-compliance requires a compliance automation solution.
Sprinto, a compliance automation platform, helps you effortlessly manage compliance from start to finish. By automating manual processes and compliance workflows, you spend more time on strategy and less time in fulfilling compliance. In short, Sprinto does the heavy lifting by putting your compliance program on autopilot.
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FAQs
1. Is there a penalty for ISO 27001 non-compliance?
No, there is no penalty for ISO 27001 non-compliance. However, it is advised to follow ISO 27001 requirements to safeguard your IT infrastructure, as ISO 27001 requirements lay down the foundation for different security and legal compliance frameworks.
2. How to mitigate the consequences of non-compliance with HIPAA?
To mitigate HIPAA non-compliance consequences, provide staff training, conduct risk assessments, ensure policy enforcement, follow requirements and monitor PHI access.
3. What is the best way to mitigate the consequences of non-compliance?
The best way to mitigate the legal consequences of non-compliance is by adopting a compliance management solution like Sprinto that helps you design and automate robust compliance programs to achieve and maintain compliance effectively.
4. Are there any criminal penalties for non-compliance?
Yes. Non-compliance with several laws, standards, and regulations like HIPAA, PCI DSS, and GDPR can lead to criminal penalties. If the organization is found to have violated the law knowingly, it can land you in legal trouble, and you can face criminal charges (such as heavy fines, imprisonment, etc.) The penalties vary from one compliance regulation to another and depend upon the severity of the violation.
5. How do an organization’s employees play a crucial part in minimizing non-compliance?
Fostering a strong culture of security and compliance always requires a team effort. When everyone is on the same page and understands the importance of compliance in the organization, you can effectively comply with different regulatory compliance frameworks. So, make sure that you conduct employee awareness sessions and training on various compliance areas.
6. What is regulatory non-compliance?
Regulatory non-compliance is the failure of an organization to adhere to compliance regulations and laws related to business practices. It includes behaviors like unethical security practices, adherence to safety protocols, or insufficient reporting. It has severe consequences like financial fines, legal penalties, reputational damage, jail time or disciplinary action.
