What is Compliance Outsourcing?

Compliance outsourcing is a practice whereby a company delegates its regulatory, tax, and legal obligations to external professionals. Outsourcing includes human resources compliance, tax filings, industry standards compliance, and adherence to global privacy laws.

Ascot International provides outsourced compliance solutions on a global scale, supporting companies operating in multiple markets and regulatory environments. In this article, we will analyze what compliance outsourcing is, why it is adopted, and what criteria to consider when choosing a reliable external partner.

Understanding Compliance Outsourcing

In a business context, compliance outsourcing involves outsourcing regulatory and legal tasks to third-party providers with specific expertise. This approach allows the company to entrust external consultants or organizations with the task of ensuring compliance with applicable laws, industry regulations, and ethical standards. Among the various activities that can be outsourced are monitoring regulatory updates, preparing documentation for legal compliance, conducting internal and external audits, providing licenses during regulatory inspections, and managing training.

Why Companies Outsource Compliance

There are many reasons why companies outsource compliance.

• Delegate tasks: The first advantage is the ability to shift workloads to third-party professionals, allowing you to focus on business growth.
• Access to specialist expertise: External providers can bring industry knowledge that is very expensive to develop internally.
• Greater operational efficiency: Expert help can lead to a more efficient business structure with streamlined and consolidated processes.
• Reduced compliance risks: Thanks to this expertise, the risk of incurring penalties or business interruptions is significantly reduced.

In short, outsourcing allows you to proactively and effectively address startup compliance challenges.

What Can Be Outsourced in a Compliance Program

As mentioned, there are many reasons for outsourcing certain areas of business activity. Delegating these processes outside the company can improve efficiency and regulatory compliance. Outsourceable functions include:

• HR and employment compliance: The management of recruitment, employment contracts, dismissals, and company policies is entrusted to an external provider.
• Financial and tax compliance: Professionals will prepare tax returns, manage cross-border VAT, and keep financial records.
• Data protection and privacy: Industry experts will ensure compliance with GDPR, CCPA, and other privacy and data regulations.
• Environmental compliance: The preparation and submission of environmental reports and emissions tracking are outsourced.
• Internal reporting and controls: In this case, consultants will verify that production complies with compliance standards by conducting internal and external audits.

Outsourcing certain activities allows companies to reduce costs while complying with complex regulations.

Types of Compliance Outsourcing Providers

A company considering outsourcing compliance can use various solutions to obtain these services.

• Legal or specialist consultants: These are professionals skilled in supporting specific activities—tax, legal, data protection, etc.
• BPO companies: These are firms that provide complete administrative service packages, including tax reporting, payroll, HR contracts, back-office, etc.
• Industry regulatory specialists: Experts in fintech, medtech, and logistics sectors. They provide technical know-how.
• SaaS platforms: These are tools that combine compliance process automation (such as data monitoring and archiving) with consulting financial services.

Pros and Cons of Compliance Outsourcing

The outsourcing process, therefore, provides specific advantages but also some disadvantages that need to be considered.

Pros

• Access to specific skills that are difficult to obtain internally in a short time and at a low cost;
• Faster integration into different markets thanks to expert support and acquired knowledge;
• Scalable support that can be adapted to the company’s growth.

Cons

• Risk of supplier dependency: Outsourcing compliance can cause difficulties if you change providers.
• Less control over daily activities: Outsourcing can result in a lack of control over daily activities, with delayed responses to problems.
• Sensitive data management issues: If data is not adequately protected, it may be exposed to security breaches.

Therefore, compliance outsourcing can be beneficial for businesses if potential risks are kept under control.

How to Decide If You Should Outsource Compliance

Outsourcing can therefore be very profitable in terms of cost-benefit. In any case, the decision must be made based on specific parameters.

• Assess internal adaptability: Check if the team has the necessary skills to manage legal and regulatory compliance.
• Consider regulatory and sectoral difficulties: Each sector has specific characteristics with considerable adaptation difficulties.
• Analyze risk exposure: Consider whether the most significant difficulties could lead to reputational and operational risks.
• Compare costs and benefits: Assess whether higher costs correspond to equal benefits. Outsourcing can sometimes be the most cost-effective option.

Once you have considered all these challenges, decide whether to develop dedicated internal teams or rely on external professionals.

When to Start Outsourcing Compliance

During business operations, there are certain situations where outsourcing may be the wise choice.

• Entering foreign markets: Entering different markets involves managing specific local regulations. 
• Team expansion and international growth: As you scale your business and expand, the complexity increases, leading to the need for external providers.
• Launching regulated products and managing sensitive data: Some industries have strict operating standards, including data protection policies.
• Negative outcomes from audits or internal controls: If deficiencies in processes or documentation emerge, relying on experts can be the solution to get back on track quickly.

A proactive approach to compliance outsourcing reduces critical issues and allows the company to grow with greater confidence.

Key Features to Look for in a Compliance Outsourcing Partner

Choosing the ideal provider is not always easy and depends on four main aspects.

• International capabilities: The provider has demonstrated international experience and knows how to navigate different jurisdictions.
• Clear SLAs and documented scope of work: Upon signing the contract, the provider is clear and transparent about Service Level Agreements and their scope of activity.
• Industry experience: The provider’s experience in the company’s industry is essential.
• Secure data management practices and certifications: It is also essential to verify that the provider complies with the highest security standards and holds globally recognized certifications (ISO 27001, SOC 2).

Building an Outsourced Compliance Relationship

Once you have selected the right partner, define clear objectives, mutual responsibilities, and operating procedures right from the start.

Appoint an internal supervisor who will act as the link between your team and the external supplier, facilitating the flow of information and coordination of activities.

Monitor progress through periodic reports or dashboards and schedule quarterly reviews to assess the collaboration’s progress.

FAQs

What is compliance outsourcing?

It is the process by which a company relies on external professionals or organizations to manage legal, regulatory, and operational compliance.

Why do businesses outsource compliance?

For various reasons: to access specific skills, reduce internal costs, improve productivity, and business efficiency.

What types of compliance can be outsourced?

The most common areas subject to outsourcing are labor law, tax law, data protection, environmental reporting, and industry standards.

Is outsourcing compliance safe?

Yes, if you rely on trusted partners such as Ascot International who guarantee expertise, data protection, and experience. 

How do I choose the right compliance outsourcing provider?

Verifying the company’s legal and sectoral expertise, the presence of certifications and data security systems, and the ability to scale alongside your business.

References

KPMG. (2023). The future of compliance: Outsourcing as a strategic lever. KPMG International.

https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2022/future-outsourcing.pdf

PwC. (2022). Compliance outsourcing: Managing risk and driving efficiency. PricewaterhouseCoopers.

https://www.pwc.com/gx/en.html

Deloitte. (2023). Outsourcing compliance: Balancing cost and control. Deloitte Insights.

https://www.deloitte.com/global/en/issues/work/global-outsourcing-survey.html