Over the last decade, penalties for non-compliance have shot up into the billions of dollars.

A significant gap still exists between good intentions and best practice, despite a significant increase in focus on compliance due diligence, as Baker McKenzie have found.

The extent of compliance risk in deals

Even with the best of intentions, parties to deals like mergers and acquisitions are frequently being exposed to “unnecessary and avoidable risks that could negatively impact pricing, profitability and even call into question the fundamental rationale of the deal”, according to the report.

The report also revealed that:

• 41% of respondents said more than a quarter of their recent deals had failed due to discovery of compliance issues or risks over the past three years; 26% said more than half had failed.
• 55% said conducting proper compliance due diligence increased the chances of success of completion and value creation in an M&A or joint venture transaction.
• 56% wished they had dedicated more time to conducting compliance due diligence post closure, such as during post-merger integration.
• 69% of respondents agree they could be more compliant if they were able to work more effectively across silos
• 51% say their organisation is very or somewhat siloed
• Only 20% manage compliance in a broadly integrated way

Navigating evolving legal regulations and requirements is clearly a mammoth task for a company of any size. 

Reducing compliance risk starts with knowing what boxes to tick

How can you follow the rules if you don’t know exactly what they are? Without the right framework in place, companies will inevitably end up with gaps and information silos as they grow, resulting in failure to meet critical compliance requirements.
 
Setting up this framework for governance in the first place is essential to prevent companies from stepping outside the lines, even as regulations evolve and develop. 

A structured blueprint that guides you through every stage of the business lifecycle will give you:

• The confidence that you are fully compliant at all times
• The ability to scale with significantly reduced risk
• Clear accountabilities & ownership
• A clear path forward

Establishing a compliance risk framework early is a crucial advantage

In the early days of a business, like in many start-ups, you may not have a human resources function – but there are still HR requirements that need to be met. You might have your founder or CEO covering 5-6 different areas initially, but as you scale, you can hire specialists until eventually there’s one person looking after each of them.
 
As you grow your management team and move from generic to specialised functions, you’ve already got your structure in place; it doesn’t need to be reworked – you’re simply adding specialisation to it. The team is educated, engaged, and empowered to reach their outcome as efficiently as possible. 

Following a structured template is as much about people as it is information. Sure, getting your house in order and keeping documentation visible and organised is crucial – but it’s also about clarity of ownership. Accountabilities need to be outlined, with the right people, in the right roles, doing the right thing – otherwise things can quickly fall through the cracks or get overlooked.

There is visibility over who owns each area, who is responsible, and what good looks like, and clear expectations on deliverables set for the management team.
This is then perfectly aligned to future events in your company, from audits, to exits, to compliance.

A virtual data room can be a critical tool to achieving this, particularly if it offers always-on secure file storage.

7 ways an Ansarada data room mitigates compliance risk

Here are 7 of Ansarada’s virtual data room features that have been designed to help you avoid compliance risk, handpicked by Mitch from our knowledgeable Customer Success team.

Integrate compliance into the process with Pathways & scorecards

Pathways & scorecards, combined, give you a structured blueprint to follow for any outcome, from audits to M&A, business exits and more. Pathways lay out a framework to address compliance due diligence (CDD), from antitrust laws and data privacy to sanctions and environmental compliance. They bullet-proof and integrate CDD into the overall due diligence process. 

Lock, track and self-destruct files

Being able to share files securely is paramount. Share your most sensitive information confidently with the ability to remote self-destruct documents at any point in the transaction. When you remove a bidder or guest from the transaction room, their rights programmatically expire, including all information saved outside of the room. Allow outside parties to run the financial models required for proper analysis, while removing their right to retain your most important data later on. 

This level of data security extends to print and save controls of Microsoft Office and PDF files both inside and outside the data room as well.

Centrally manage the Q&A process from end-to-end

Maintaining confidentiality is critical to complying. Requirements differ on the buy-side and sell-side; so using a central Q&A system for ease of reference in a single location is a major advantage. Keep track of what’s been asked, what’s been sent, and avoid lengthy email back-and-forth and duplication of work.
 
The ability to add comments, or to @ someone directly within the scorecard and have them get a Q&A notification via email is key to tracking and managing progress.

Keep the complexities behind the scenes

90% of all data breaches can actually be traced back to human error, according to a report from Willis Towers Watson. 

Our security engine is designed with the end user in mind, whether they are a senior stakeholder or a junior analyst. All the complexity is hidden in the back end, leaving only the simplest controls at the front and reducing the potential for people’s mistakes.

"Our business relies on [the Ansarada] platform for information exchange and to manage the Q&A process,” said Rowan Fisher, Capital Transactions Manager at Stockland Group. “Ansarada has allowed us to minimize complexity, reduce transaction costs and move forward with confidence.”

Get all the controls you need to protect against mistakes and ensure total compliance during your transaction when it comes to managing risk, people, critical information and security.

Granular control

Use key features to maintain control, like threaded commenting to create a record of all activity and questions, and subject security to maintain anonymity.

Dynamic watermark security

Apply a default or customized dynamic watermark to any PDF in the Room. Default watermarks include the basic user details of the person who opens the document, including their IP address, email address and date/time the document was accessed.
 
Insert dynamic tags in the watermark text to easily track the engagement and activity associated with the document. The result is an impenetrably secure set of documents, the granularity of which feeds into our fifth feature – a full audit trail of all activity, down to the most minute detail and, of course, a complete data room archive. 

Digitised reporting & audit trail

The most common compliance errors result from using hearsay, guesswork and non-standardized reporting. Being able to trace records from their origins through their many evolutions is key to offering full visibility and transparency to the wider business, stakeholders, the board, etc.

Generate a digital audit trail - comprising every action, question and critical click - to express the truth on where your transaction stands. 
 
With a range of activity reports on users, documents, Q&A and more, you can satisfy any compliance, disclosure or reporting requirements with ease, and with the confidence that not a single thing is missing.

Compliance due diligence is a growing concern

While improvements are being made, a fast-changing regulatory environment makes improving CDD processes an ongoing challenge for most dealmakers.

74% of dealmakers cite the need to keep pace with changing laws and regulations as the top areas of focus in their primary industries, while 69% say that modernisation or digitalisation efforts will be a key focus area in the next year (Baker McKenzie).

Choosing a suitable compliance-forward virtual data room can significantly address many of the compliance challenges with your next transaction.