What does 'regulatory compliance' refer to?

Regulatory compliance refers to the process of adhering to laws, regulations, guidelines, and specifications that are relevant to business operations. This concept is crucial in the financial industry, where firms must follow strict rules established by regulatory agencies to ensure fair practices and protect investors. Compliance involves understanding and implementing the requirements imposed by various authorities, such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), among others. Firms must maintain policies that ensure they operate within the legal framework, which includes conducting regular audits, staff training, and reporting obligations to manage compliance effectively. The importance of regulatory compliance cannot be overstated; breaches can result in penalties, sanctions, and reputational damage for the firm.