When and Why Must a Licensed Entity Update Its Internal Regulations? A Guide for Management to Protect Your Business.

In today's dynamic business environment, outdated internal regulations are a ticking time bomb. Many companies are unaware that a change in the law, a new product, or even a personnel shift in management can necessitate an immediate review of internal policies. This article provides a clear overview of the key moments when updating is not just recommended but legally required, and what risks you run by neglecting it.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr.Jáchym Petřík", an expert on the subject.

Internal Regulations: Not Just Bureaucracy, but a Strategic Management Tool

Internal regulations are more than just formal documents filed away in binders. They are the cornerstone of effective risk management, corporate culture, and legal certainty. They represent a set of rules that standardize procedures, define responsibilities, and ensure compliance with legal requirements, thereby reducing the risk of sanctions. This isn't just about accounting policies, but a comprehensive system covering everything from labor relations to specialized regulatory demands.

The backbone of any compliance framework is a robust governance and control system. Although this term is most detailed in the Act on Banks, its principles are the universal gold standard for any licensed entity serious about risk management. It includes a clear organizational structure with well-defined powers, a risk management system, and effective internal controls, including auditing.

It is a mistake to view policies as static documents. They must be "living documents" that constantly evolve to reflect not only legislative changes but also the current needs and conditions of your company. This dynamic approach is in direct contrast to the dangerous practice of "set it and forget it," which opens the door to unnecessary risks.

Properly issued internal regulations are binding on both the employer and all its employees. Failure to comply can be classified as a breach of work discipline, but only if the regulations were correctly issued and employees were demonstrably made aware of them. Herein lies a critical pitfall: a director's signature alone is not enough. The regulation must be properly "promulgated," and there must be a distinction between its validity (date of issue) and its effectiveness (the date from which it is binding) to give employees time to familiarize themselves with it.

At ARROWS, we can help you not only with drafting policies but also with setting up the entire implementation process to ensure their full legal enforceability. For a consultation, contact us at office@arws.cz.

Key Triggers That Demand Your Immediate Attention

There are three main categories of events that should immediately trigger a review and update of your internal regulations. Ignoring these signals is a gamble that may not pay off.

Legislative Changes: Are You Sure You Haven't Missed Anything?

The most common and serious reason for an update is a change in the legal environment. Whether it's a new law, an amendment to an existing one, or a regulator's decree, your internal processes must comply with current law. This applies to regulations such as the Act on the Registration of Beneficial Owners, the AML Act, or the Labour Code.

European Union law is a specific chapter. Here, the key term is transposition. EU directives are not directly applicable; member states must incorporate (transpose) them into their national law within a given deadline. This represents a constant stream of changes that must be actively monitored. Companies that wait for the Czech law to be announced often find themselves under unnecessary time pressure. Proactive monitoring and preparation for implementation is therefore a significant competitive advantage.

In addition to laws, it is necessary to monitor the requirements of regulators such as the Czech National Bank (CNB) or the Energy Regulatory Office (ERÚ). Their decrees and methodological guidelines are equally binding for licensed entities and often require immediate adjustment of internal processes.

FAQ – Legal Tips on Legislative Monitoring

• How quickly must we react to a new CNB decree?
  Immediately. The CNB expects you to respond to changes in legislation without delay and ensure your documentation is compliant. For an immediate analysis of the impact of new legislation on your business, write to us at office@arws.cz.
• Do we also have to follow recommendations from Brussels?
  Yes, absolutely. National regulators follow the general guidelines of European authorities (EBA, ESMA) and expect the same from you. Need help implementing European standards? Contact us at office@arws.cz.

Internal Company Development: Do Your Policies Reflect Your Business Reality?

The second key trigger is changes within your own organization. Your internal regulations must always correspond to how your company actually operates.

Any significant organizational change—such as a change of directors, board members, ownership structure, or a major restructuring—requires an immediate review of signature policies, approval processes, and delegation of powers. Furthermore, failing to report these changes to the regulator is a significant risk in itself.

Similarly, introducing a new product, service, or entering a new market changes the company's risk profile. This must be immediately reflected in the risk assessment and related policies, especially in the AML area. If you are planning an international expansion, our specialists within the ARROWS International network can help you set up processes in line with local legislation.

Finally, it is necessary to respond to technological changes. The implementation of a new IT system, the introduction of cameras in the workplace, or the transition to cloud services has a direct impact on policies regarding personal data protection (GDPR), cybersecurity, and data management.

Findings from Audits and Inspections: How to Respond to Warning Signs?

The third trigger is findings from control mechanisms that reveal weaknesses in your system. Findings from an internal or external audit are not just recommendations but a clear signal that existing processes and policies are failing. Ignoring these findings is an aggravating circumstance for the regulator during a potential inspection.

An inspection by a regulator, whether the CNB or ERÚ, is the real "moment of truth".

After an inspection, it is not enough to formally correct the identified deficiencies. A thorough review of the entire governance and control system is necessary to prevent their recurrence in the future. ARROWS lawyers have extensive experience representing clients during inspections and implementing corrective measures. For assistance, please contact office@arws.cz.

The Real Threats of Outdated Regulations: From Fines to License Revocation

Neglecting to update internal regulations is not an abstract risk. It is a real threat with concrete financial, operational, and reputational impacts that can jeopardize the very existence of your company.

In cases of serious or repeated failings, the regulator may resort to the ultimate sanction – license revocation. For a licensed entity, this effectively means the end of business. There is also the risk of personal liability for management, where members of the statutory body can be held accountable for damages caused by neglecting their duties.

At ARROWS, we understand that maintaining compliance with constantly changing rules is challenging for management. That is why we provide our clients with comprehensive legal support, allowing them to focus on their business with the knowledge that their compliance is in the best hands. Our services in this area include:

• Document Audit and Creation: We will conduct an in-depth review of your existing internal regulations or prepare entirely new, tailor-made documentation, including the Internal Policy System (AML), risk assessments, work regulations, and other policies.
• Legislative Monitoring: We actively monitor changes in Czech and European legislation and inform you in a timely manner about the need to implement new rules into your internal processes.
• Customized Training: Insufficient employee training is a common offense. We will prepare and conduct certified training for your management and employees to help them understand and correctly apply internal rules.
• Representation before Authorities: We will represent you in licensing procedures with the ERÚ, during inspections by the CNB, or in administrative offense proceedings to protect your interests.Our experience from long-term cooperation with more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions allows us to provide services at the highest level. We pride ourselves on speed, quality, and the ability to connect our clients when we see interesting business or investment opportunities.

Conclusion: Proactive Compliance is Not a Cost, but an Investment in Stability

Regular and careful updating of internal regulations is not just about avoiding fines. It is a fundamental prerequisite for building a resilient, transparent, and well-managed company. Neglecting this area leads to legal uncertainty, operational chaos, and, in extreme cases, fatal consequences for your business.

Don't wait for an inspection from the regulator. Ensure peace of mind and legal certainty with the help of experts from ARROWS. For a no-obligation consultation on the state of your internal regulations, contact us at office@arws.cz. 

FAQ – Most Common Legal Questions about Updating Internal Regulations

1. How often must I formally review all internal regulations, even if nothing significant has changed?
   We recommend a comprehensive review of key documentation at least once a year. This internal audit helps you verify that procedures still reflect reality and are effective, which is in line with regulators' expectations for "continuous risk management." If you are dealing with setting up internal audits, contact us at office@arws.cz.
2. We are a small licensed firm. Do we need policies as complex as a large corporation?
   No, you do not. Regulators require the governance and control system to be "proportionate" to the nature, scale, and complexity of your activities. A small firm's policies will be simpler than a bank's, but they must effectively cover all relevant risks. For setting up a proportionate system, contact our specialists at office@arws.cz.
3. Is it sufficient to buy a generic policy template from the internet?
   We strongly advise against it. Especially in areas like AML, regulators (CNB, FAU) require that documentation, such as the Internal Policy System, be based on your own individual risk assessment. Using a generic template is a common offense that leads to sanctions. If you are facing a similar issue, contact us at office@arws.cz.
4. What does "demonstrably acquaint employees" with a new policy specifically mean?
   It means having proof that every employee had the opportunity to familiarize themselves with the policy. In practice, this is most often done through a signature on an attendance sheet from a training session, confirmation in an internal electronic system, or a signed physical protocol. Without this proof, the enforceability of the rules is problematic. For an immediate solution to your situation, write to us at office@arws.cz.
5. We have changed a director. Do we need to update anything other than the Commercial Register?
   Yes. A change in management is key information for the regulator. It is necessary to update internal documents (e.g., signature policies) and fulfill notification obligations to the relevant regulator (e.g., CNB), which assesses the professional competence and trustworthiness of new individuals.9 Our lawyers are ready to help you – write to office@arws.cz.
6. Our company also operates in Slovakia and Poland. Do our internal regulations need to consider their laws as well?
   Yes, absolutely. Your compliance must be in line with the legislation of all countries where you operate. Thanks to our ARROWS International network, built over ten years, we provide legal advice with an international element on a daily basis and can help you set up internal regulations that comply with all local requirements. Connect with us at office@arws.cz to get a tailor-made legal solution.