In an iterative project, when a new compliance requirement is introduced that impacts the project, it is essential to update the project documentation to reflect this change. The product backlog is a living document that captures all the requirements, including new and changed ones, that need to be addressed in the project.
By updating the product backlog, the project manager ensures that the team is aware of the new compliance requirement and can plan for its implementation in upcoming iterations. This action aligns with the agile principle of welcoming changing requirements, even late in development, as a means to enhance customer competitive advantage (as per the Agile Manifesto).
References: = The answer is based on the best practices outlined in the PMBOKGuide and the Agile Practice Guide, which are part of the PMP certification materials. These guides emphasize the importance of maintaining an up-to-date product backlog and incorporating changes that may arise during the project lifecycle.