Regulations are increasing across the globe and it’s forcing boards of directors to participate in all matters of the company’s business. This is especially true in the areas of compliance with the law and industry regulations. Huge variations in the economic climate during the last few decades have also raised expectations of stakeholders who want to invest in companies with a formidable reputation for regulatory compliance.
Increased compliance regulations and stakeholder pressure have motivated board directors to work diligently toward a reciprocal relationship with their managers and risk management teams
There are a lot of misconceptions about compliance and risk management. Both help to prevent security threats to the organization’s legal structure and physical assets. Commonly, when people hear the terms compliance and risk management, they think the two are the same. While there is an overlap between these two terms, it’s important to understand how compliance and risk management differ in order to ensure each is handled correctly.
In doing so, leadership teams can use each strategy to their full advantage and make a real impact on their organization’s cybersecurity posture. Let’s explore the functions, definitions, and differences between compliance and risk management.
What is Compliance Risk?
Risk factors are used to quantify threats and bad actors that target valuable data. Compliance risks are the factors that affect a company’s current compliance status. Risk is often quantified numerically and monetarily to determine potential loss should a threat actor penetrate infrastructure defenses and obtain private data. If the organization is non-compliant, it could face hefty fines. To avoid these fines, organizations assess risk and apply a compliance risk management strategy.
Compliance regulations are there to protect consumers and their personal data, including patient data, financial data, and personally identifiable information (PII). Organizations adhere to compliance regulations on storing and accessing data and safeguarding personal data to avoid large fines for violations. These regulations place responsibility on the organization to ensure that best practices are used when customers entrust them with their PII. Compliance risks lie in how organizations deploy security tools and carry out best practices to preserve data integrity and privacy.
As an organization builds its infrastructure, coding rules, database storage strategies, and application procedures, it should protect any stored data in the best ways possible. Smaller organizations that are not familiar with best practices for data integrity and protection need help with effective safeguarding procedures. Compliance helps lay out a roadmap for organizations to decide how they will store and safeguard data. It also helps decide authorization rules and defines who should have access to data.
What is risk management?
Risk management is the process of identifying, assessing, and managing potential threats that could damage the organization’s reputation and earnings. These risks stem from a variety of sources such as legal liabilities, data-related issues, financial uncertainty, and much more. Additionally, risk management involves proposing plans to increase awareness around potential threats and how to avoid them. Essentially, risk management enables organizations to prepare for the unexpected by minimizing issues before they occur.
The difference between compliance and risk management.
No question, compliance, and risk management are closely aligned. Compliance, in association with established industry regulations, ensures organizations stay protected from unique risks. Whereas risk management helps protect organizations from risks that could lead to non-compliance – which is a risk. Let’s take a closer look at how compliance and risk management roles differ within an organization.
Prescribed vs. predictive
The prescriptive nature of compliance requires organizations to adhere to rules and regulations. Meanwhile, the predictive nature of risk management forecasts the impact risks will have on organizations, encouraging organizations to take immediate action and implement new processes that minimize risks.
Tactical vs. strategic
Non-compliance can lead to expensive fines, penalties, and reputational damage. To ensure your organization is adhering to rules and regulations, compliance requires a “box-checking” approach. Contrarily, risk management is more strategic because it requires making and carrying out decisions that minimize cybersecurity risks in an organization.
Risk aversion vs. value creation
Companies that don’t have a long-term approach to risk management and don’t comply with regulations are less likely to convince stakeholders of their value. Typically, compliance stops once there is verification that a rule has been followed. Compliance also gets a bad rap because it requires a lot of time, effort, and resources from employees that would much rather work on projects that bring immediate value to the business. However, a good risk management plan can continuously track changes in the regulatory environment to ensure the organization’s compliance is up to date, transforming the downsides associated with compliance into a value proposition.
Why the two must coexist.
Your organization can’t have risk management without also having compliance. Unwillingness or an inability to comply with regulations results in reputational damage, lawsuits, financial losses, or enforcement actions, making it crucial to incorporate into your business. The average cost for organizations that experience non-compliance-related problems is nearly $15 million according to globalscape. A good risk management plan would allocate resources to compliance plans and procedures and ensure that compliance and general risks are continuously managed. Ultimately, organizations can avoid the headaches of dealing with non-compliance problems by simply investing in a robust risk management plan.