Increased Demand for Evidence-Based Compliance: EU Surpasses the USA
For many years, the global compliance landscape was dominated by a checkbox-driven approach, primarily led by the United States. Compliance programs in the U.S. focused on prescriptive rules, and adherence to specific frameworks, and largely followed a formulaic pattern where ticking the correct boxes and maintaining records sufficed to meet regulatory requirements. At the heart of this approach was the Chief Ethics and Compliance Officer (CECO), a role that has long been established as part of the American compliance infrastructure.
However, recent developments in Europe, especially within the European Union (EU), have reshaped the compliance landscape. With a significant shift toward evidence-based compliance, the EU is now spearheading a more agile, risk-based, and outcomes-focused approach to regulation. This shift has allowed Europe to leapfrog the U.S. in terms of structured compliance programs, creating a more mature and demanding framework for organizations to follow.
The Evolution of European Compliance
For many years, Europe lagged behind the U.S. in terms of organized compliance frameworks. U.S.-based organizations were at the forefront of building structured compliance programs, with the CECO role established as a key component in ensuring adherence to regulations such as the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley (SOX). In contrast, Europe’s regulatory environment was perceived as more fragmented, with less emphasis on the structured and formalized compliance initiatives seen in the U.S.
This, however, began to change with the introduction of sweeping regulatory frameworks within the EU. The General Data Protection Regulation (GDPR), which came into force in 2018, was the first signal that Europe was taking a different path. GDPR was not just a regulation; it was a paradigm shift that put data privacy and security at the forefront of global compliance conversations. The regulation’s stringent penalties and extraterritorial reach forced organizations worldwide to rethink their approach to compliance, especially in how they collect, manage, and protect personal data.
With this regulatory foundation, Europe has continued to develop regulations that go beyond prescriptive checklists, demanding a more principled and evidence-based approach. Three key regulations currently shaping this new approach are the Corporate Sustainability Reporting Directive (CSRD), the Digital Operational Resilience Act (DORA), and the EU Artificial Intelligence Act (EU AI Act), all have looming 2025 deadlines (and more in subsequent years). These regulations emphasize risk-based compliance, requiring organizations to provide clear, documented evidence that they are not only meeting regulatory requirements but also achieving the intended outcomes of those regulations.
Europe’s Shift Toward Evidence-Based Compliance
At the core of the EU’s new compliance landscape is a focus on evidence-based compliance, where companies must not only adhere to regulations but also demonstrate how they are achieving compliance in a way that is effective and sustainable. The EU’s regulations are broader in scope with a global impact outside of the EU, focus on outcomes rather than prescribed steps, and require companies to take a more risk-based approach.
Principled and Outcome-Based Compliance
Unlike the U.S., which has traditionally followed a checkbox-based, prescriptive model of compliance, the EU has adopted a more principled, outcome-based framework. This approach started in the United Kingdom under the old FSA (before it became the FCA) and moved to be part of the EU’s better regulatory policy nearly twenty years back.
It requires organizations to take a risk-based approach, tailoring their compliance programs to specific risks that are unique to their operations, industry, and geography. Simply following a list of mandated tasks is not enough. Organizations must show evidence of how they have mitigated risks, complied with regulatory outcomes, and adjusted their internal controls and procedures in real-time.
For instance, the CSRD requires organizations to report on a wide range of environmental, social, and governance (ESG) factors. But beyond simply reporting, they must provide evidence that their ESG strategies are embedded into their core business practices and demonstrate tangible impacts (including across the extended enterprise with the corresponding EU Corporate Sustainability Due Diligence Directive – CSDDD. This is in contrast to the U.S., where ESG reporting has been more voluntary, with scattered compliance mandates, and less comprehensive focus.
Similarly, the DORA regulation, which focuses on the operational resilience of digital infrastructures, requires financial institutions and third-party providers to show evidence of risk assessments, internal control measures, and continuous monitoring to safeguard against cyber threats. The directive’s emphasis on evidence-based reporting makes it clear that organizations need to proactively manage their operational resilience risks, rather than reacting to incidents as they arise.
The Challenges and Benefits of the European Model
The EU’s approach to compliance is undoubtedly more complex and demanding than the traditional U.S. model. While the prescriptive nature of U.S. regulations provides clarity and a structured approach, it can often become inflexible, making it difficult for companies to adapt to emerging risks or evolving regulatory landscapes.
In contrast, the EU’s evidence-based model, while more agile and adaptable, comes with challenges. One of the main hurdles for organizations operating in Europe is the requirement for continuous monitoring and documentation. Compliance teams must be proactive, constantly assessing risks and adjusting controls to ensure they remain compliant. The lack of prescriptive rules means that organizations must exercise greater diligence in interpreting regulations and building compliance programs that are tailored to their specific needs.
Another challenge is the sheer breadth of compliance requirements across different sectors and jurisdictions within the EU. For multinational companies, this can lead to significant resource allocation toward compliance functions, requiring more advanced tools for compliance risk management, reporting, and data governance.
However, these challenges come with significant benefits. The EU’s outcome-based approach allows for greater flexibility, enabling organizations to design compliance programs that are more tailored and responsive to their unique risks. This, in turn, fosters a culture of continuous improvement, as organizations are encouraged to go beyond minimum compliance standards to truly integrate risk management into their business strategy.
Moreover, by requiring evidence of compliance, the EU is pushing organizations to demonstrate transparency and accountability. This is not only beneficial for regulators but also strengthens trust with investors, customers, and other stakeholders. The focus on measurable outcomes means that organizations can build more resilient and sustainable compliance programs, which ultimately reduce long-term risk exposure.
The U.S. Compliance Landscape: Can It Keep Up?
In comparison to the EU, the U.S. compliance landscape remains more prescriptive, though there are signs of change. It is also disrupted by the political polarization in U.S. politics that fails to get broad compliance reform addressed. The U.S. Securities and Exchange Commission (SEC) has recently proposed new rules around ESG disclosures, which would require more comprehensive reporting on climate-related risks. However, this is only a piece of the broad EU CSRD pie of ESG. These developments are still in their early stages, and U.S. regulations continue to be driven by a checklist mentality, with less emphasis on the principles or outcomes of compliance.
While the CECO role remains central in U.S. organizations, there is growing recognition that compliance needs to evolve beyond rigid frameworks. The demand for data-driven, risk-based compliance is growing, especially as global regulations, particularly those in the EU, have a wider extraterritorial reach.
Be-Prepared for Evidence-Based Compliance
As the compliance landscape continues to evolve, the EU has emerged as a leader in structured, evidence-based compliance programs. The transition from a prescriptive, checkbox-based model to a principled, outcome-driven approach has propelled Europe ahead of the U.S., requiring organizations to be more agile, risk-focused, and diligent in their compliance efforts.
The upcoming deadlines for CSRD, DORA in 2025, and the forthcoming EU AI Act (as just a few examples) will further cement Europe’s leadership in this space, as organizations must not only comply but also demonstrate evidence of compliance in a way that is both transparent and risk-based. For compliance professionals, this shift presents an opportunity to build more resilient and effective compliance programs, though it will require significant investment in tools, resources, and expertise to meet these new regulatory challenges.
As global regulatory environments become more intertwined, it is likely that the U.S. will also adopt more elements of evidence-based compliance, though for now, Europe leads the charge in this new era of compliance oversight. However, many firms in the U.S. and around the world have to respond to the broad reach and scope of the EU regulatory environment.