How to Conduct Regulatory Compliance Gap Analysis

In the U.S., companies spend anywhere from 1.3% to 3.3% of their entire payroll budget on regulatory compliance. 

Let’s say you’re a mid-sized business with a $10 million payroll. That’s $130,000 to $330,000 each year, just to make sure you’re following the rules. 

Now imagine you miss a few compliance steps here and there. You don’t think much of it – until suddenly, an audit flags those gaps, and you’re looking at penalties that can eat into that budget even more.

This is where gap analysis comes in. It’s like getting under the hood to spot any loose screws before they cause a breakdown. Without it, you’re not only risking unexpected costs but possibly much more in lost time, productivity, and reputation. 

While it may feel like a chore, if it helps you avoid ballooning costs down the road, isn’t it crucial to keep that compliance budget lean and your company out of hot water? 

If you’re nodding along, this guide is for you. Give this guide 6 minutes, and you’ll cover all the essentials

Understanding Regulatory Compliance Gap Analysis

A compliance gap analysis serves as a mirror, reflecting the true state of an organization’s compliance program against required standards. 

It differs significantly from a risk assessment, which examines potential threats. Instead, gap analysis zeros in on specific areas where existing security controls and processes need enhancement to achieve compliance. 

This means evaluating everything from customer onboarding protocols to transaction monitoring systems against applicable standards like BSA/AML requirements, KYC mandates, or local banking regulations.

This assessment becomes essential in three key situations: 

1. Implementing new compliance frameworks
2. Adapting to regulatory updates
3. Preparing for audits

Each situation needs its own carefully considered approach to deliver meaningful insights that drive improvement.

Planning the Gap Analysis

Success in compliance analysis stems from methodical planning. Consider this the foundation phase – much like creating blueprints before construction. Organizations must establish clear parameters through three essential steps:

Phase	Key Requirements	Action Items
Understanding Regulatory Requirements	Industry-specific regulations Geographical mandates Operational requirements	Create regulation inventory  Document applicability criteria Map requirements to operations
Setting Assessment Boundaries	System scope Process scope Departmental scope	List in-scope systems Document excluded areas Create scope diagram
Establishing Evaluation Standards	Compliance criteria  Performance metrics Assessment methodology	Define measurement criteria Set baseline standards Create evaluation templates

Key Components of Gap Assessment Methodology

Creating a solid methodology for compliance gap assessment is similar to building a three-story house – each level needs careful attention and supports everything above it.

• Assess Current State

More than just a simple review, this phase reveals how your organization actually operates. 

• Are KYC procedures being followed consistently? 
• Do transaction monitoring systems flag the right alerts? 
• Is customer due diligence thorough enough?

By examining daily operations, technology systems, and staff behaviors, organizations build a realistic picture of their compliance status.

Accomplish this through systematic testing, process walkthroughs, and comprehensive documentation reviews. 

For example, test customer onboarding processes across different risk levels, verify transaction monitoring effectiveness, and validate that documented AML procedures match daily practices.

• Define Target State 

Avoid creating an impossible ideal. Instead, understand exactly what regulations demand and how those demands translate into practical operations. 

The focus should stay firmly on achievability, considering your organization’s unique context and constraints.

For instance, a digital bank’s compliance needs differ from traditional banks, even under the same regulations. While one requires automated KYC and real-time monitoring, the other needs robust branch-level verification. Map these specific requirements to your controls, set practical timelines, and define metrics matching your risk appetite.

• Identify Compliance Gaps 

This is where analytical thinking proves crucial. Each gap discovered represents an opportunity for improvement, but not all gaps carry equal weight. 

Some might need immediate attention due to regulatory deadlines, while others could be addressed over time. 

Understand not just what’s missing, but why it matters and how it affects overall compliance. 

Use a structured scoring system (like 1-5 scale) to assess gap severity, document specific control failures with evidence, and create a prioritized remediation roadmap based on risk level and regulatory importance. More on this in a minute.

Regulatory Gap Analysis Procedure

1. Gather and Organize Information

Starting without proper information is like building on sand. Begin by collecting:

• Current policies and procedures
• System configuration details
• Previous audit findings
• Training records
• Incident response logs.

But yes, people hold crucial insights that papers can’t provide. This is where the second step comes in.

2. Engage with Key Stakeholders

Structured conversations with team members reveal how processes actually work, where unofficial workarounds exist, and what challenges prevent full compliance. These discussions often reveal both problems and potential solutions that might otherwise remain hidden.

3. Conduct Technical Assessment

Numbers don’t lie, but they need context. This phase examines the technical reality of your security controls. 

• Do data protection measures meet regulatory standards? 
• Are access controls working as intended? 

This technical evaluation provides concrete evidence of compliance status.

4. Analyze and Document Findings

This step transforms observations and measurements into meaningful insights. Each finding gets evaluated for its impact on compliance, considering both direct effects and broader implications for the organization.

5. Prioritize and Categorize Gaps

Not all gaps demand equal attention. Some create immediate compliance risks, while others represent opportunities for long-term improvement. Here’s a gap priority matrix you can use:

Business Impact	Regulatory Risk	Priority Level	Response Time
Critical Impact (Business disruption)	High Risk (Direct violation)	P1 – Critical	Immediate (24-48 hrs)
Major Impact (Process failure)	Medium Risk (Partial compliance)	P2 – High	Short-term (1-2 weeks)
Moderate Impact (Efficiency loss)	Low Risk (Technical gaps)	P3 – Medium	Medium-term (2-4 weeks)
Minor Impact (Improvements needed)	Minimal Risk (Best practices)	P4 – Low	Long-term (1-3 months)

 

Use this matrix to quickly assess each identified gap and determine appropriate response timelines. For example, a KYC process failure would typically be P1 (Critical), while a documentation update might be P3 (Medium).

6. Create Actionable Solutions

Identifying problems without offering solutions provides little value. 

Each gap needs a clear, practical path to resolution. 

Solutions should consider existing resources, technical constraints, and organizational culture. 

Sometimes, a simple process adjustment works better than an expensive technical solution. A solid action plan addresses three key elements:

Element	Action Items
Timelines and Milestones	Set realistic completion dates Define key checkpoints Create progress tracking schedule Plan for dependencies
Resource Allocation and Responsibilities	Allocate specific budgets Assign task owners Identify skill gaps Schedule resource availability
Implementation Strategy and Controls	Develop detailed procedures Establish review points Create risk response plans Set up monitoring systems

This measured approach helps maintain momentum while preventing team burnout.

Solutions to Bridge Compliance Gaps

Finding gaps is only half the battle. The path from identifying gaps to fixing them is what really matters. What’s needed is the right combination of smart technology and practical implementation – tools that work in the real world, not just in theory.

Let’s take a look at solutions which can make a world of difference:

Identity Verification Systems: These systems verify identities against official databases, detect document tempering and cross-check sanction lists – all while maintaining detailed verification trails. Particularly valuable for remote onboarding, they help balance security with efficiency. 

Smart Due Diligence: Platforms can help you analyze customer behavior patterns, track changes in risk profiles, and monitor transaction patterns against established rules. When something looks off, you know immediately – not during the next review cycle.

Automated Control Systems: Compliance requires consistency and proof. Automated controls create this foundation by enforcing standard procedures across operations. Every verification, every check, every decision gets logged properly – creating reliable evidence of your compliance practices.

Signzy unifies these capabilities in one seamless platform. Our API marketplace helps close compliance gaps efficiently. From DL verification and liveness checks to business verification and KYC processes, you can integrate these tools directly into existing compliance workflows.