Report on Supply Chain Compliance 3, no. 21 (October 29, 2020)
The European Union has some of the world’s most robust environmental, health and safety standards[1] for products sold and imported into the market. Despite these strict regulations (e.g., Registration, Evaluation, Authorisation and Restriction of Chemicals; Restriction of Hazardous Substances) member states often acted individually when investigating violations and enforcing compliance. The EU lacked a union-wide mechanism that could help member states work together to solve compliance-related problems more efficiently.
Starting Jan. 5, 2021, however, member states can use the infrastructure and legal framework created by the Market Surveillance Regulation[2] (MSR) to work together on regulatory enforcement and identify and enforce remediation for noncompliant products and equipment, which includes either bringing them into compliance or removing them from the market altogether.
The MSR does not introduce any new requirements for companies, nor does it request any new data. The regulation is strictly focused on creating the back-end tools necessary to help enforcement agencies around the EU access information quickly, collaborate with neighbor states, and quickly pinpoint high-risk industries and instances of product noncompliance. It does so in a few different ways.
The MSR has access to up to 70 different market access regulations and directives, such as the Registration, Evaluation, Authorisation and Restriction of Chemicals; Restriction of Hazardous Substances; the EU Waste Framework Directive;[3] and the EU Medical Device Regulation. Authorities can cross-reference products with any of these regulations’ requirements and determine if there is any missing or inaccurate information. The MSR also creates a centralized Union Product Compliance Network. The network provides quick access to any product information enforcement agencies have already acquired, including:
These two tools mean market surveillance authorities will be able to uncover noncompliant products much easier than before. Enforcement will increase, which means companies have more incentive than ever to invest in ongoing supply chain due diligence, establish relationships with other companies to share information, and thereby maintain access to the EU market.
Enforcement
Enforcement has always been irregular across the EU, as different member states handle their own borders according to their local rules and regulations. That meant that it was easier for noncompliant products to make it into the EU market. This regulation, along with the SCIP database requirements that are also going into effect January 2021, makes it much more likely that authorities will have the means to enforce regulatory compliance. Even if enforcement agencies require a learning curve to be able to use all the new tools properly, soon enough, checking against the MSR database will be standard procedure at the border.
The consequences of noncompliance will likely still vary, despite the inevitable increase in enforcement actions. Some of the consequences could include:
Because the MSR allows agencies to share information across a wide variety of regulations and directives, many different departments could face risks, from engineering to procurement. A failure to produce data or, even worse, a violation of one of the hazardous substance regulations, could result in substantial costs. It is always better to have the data in hand than go chasing them after getting stopped at the border.
Things to consider
There are some areas companies can focus on to better navigate EU’s expanding regulatory landscape.
The first is gaining access to subject matter experts. Best case scenario, there are both in-house and contracted subject matter experts that can work together to quickly determine what regulations the company must comply with, the specific data the authorities require, and how and where to submit those data.
The next critical move is to engage deeply with suppliers, vendors and other third-party contractors. The greatest risk for an importer comes from miscommunications along the supply chain, so it is important that clear and efficient lines of communication remain open. Companies should investigate what barriers there are to information flows in the supply chain and work to remove them so suppliers can clearly understand what is expected of them. Ensuring transparency along the supply chain helps to ensure that the ecosystem around the product being imported into the EU continues doing business.
It is also important that companies choose an appropriate technological platform for handling compliance activities. Departments across the company must be able to efficiently share information with each other; data must be encrypted and secure but also accessible on demand. The interface must be easy to use so companies can share the platform with suppliers, but also sophisticated enough to meet EU’s compliance requirements.
The regulatory burden for companies doing business in the EU just got a bit heavier, and companies can expect even more regulatory updates in the years to come.
Takeaways
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The Market Surveillance Regulation makes it much easier for European Union member states to collaborate in enforcing product compliance at the border.
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The new regulation also makes it much more difficult for noncompliant companies to slip through the cracks. To maintain access to the EU market, companies must make the investments needed.
