What is compliance risk management?

Compliance Risk Management

Compliance risk management refers to the practice of identifying potential risks in advance, analyzing them, and taking precautionary steps to reduce the risk. Organizations are attempting to spot risks off in the distance and mitigate them before they ever get the chance to cause any trouble. 

However, even if you had unlimited resources which is unrealistic, know that no company can achieve perfect compliance with all regulatory burdens. Some mistakes are bound to happen eventually. The goal is to reduce the operational risk of non-compliance down to levels acceptable to your board and your regulators.  

Because compliance risk management looks different for every company, each company should work with GRC/IRM consultants like the iTech GRC team to develop an appropriate compliance risk management program designed to suit its specific business processes and regulatory compliance concerns. 

WHAT IS COMPLIANCE RISK? 

Compliance risk is the threat posed to a company’s financial, organizational, or reputational standing resulting from violations of laws, regulations, codes of conduct, or organizational standards of practice. Many organizations may need to improve their risk assessment process to fully incorporate compliance risk exposure. The case for conducting robust compliance risk assessments can be made given today’s business complexity, but it is also deeply rooted in the U.S. Federal Sentencing Guidelines for Organizations, which establish the potential for credit or reduced fines and penalties should an organization be found guilty of a compliance failure. 

Compliance risk assessment will help the organization understand the full range of its risk exposure, including the likelihood that a risk event may occur, the reasons it may occur, and the potential severity of its impact. An effectively designed compliance risk assessment also helps organizations prioritize risks, map them to the applicable risk owners, and effectively allocate resources to risk mitigation. 

Examples of compliance risks

The following are types of compliance risks: 

Corruption 

Legal compliance ensures that the organization, its agents, and employees are abiding by the laws and regulations of the industry. Common compliance risks involve illegal practices and include fraud, theft, bribery, money laundering, and embezzlement. The Foreign Corrupt Practices Act (FCPA) prohibits the bribing of foreign officials or political agents by U.S. citizens, companies, and the foreign subsidiaries of American-based businesses. Your organization can even be held liable for the actions of third parties outside of your direct control if you are aware of a high probability that these companies will engage in corruption.  

Data protection. 

Data storage is being used now more than ever before and new technology is being developed every day. An increase in reliance on technology and data storage means there are and will continue to be more privacy and protection regulations to adhere to. One of the most common compliance risks risk managers are seeing today is the violation of privacy laws. Hacking, viruses, and, malware are some of the cyber risks that are affecting organizations in every industry. Additionally, if a company handles sensitive information, it is required to take the appropriate measures to protect that data and prevent privacy breaches. 

Environmental concerns. 

These compliance risks deal with pollution and environmental damage that an organization’s operations can cause. These damages can include the destruction of natural habitats, use of harmful chemicals, hazardous waste disposal and pollution of groundwater. Many companies are integrating sustainability into their business strategies and are providing their employees with training and resources to help them achieve environmental compliance. 

Process risks.  

Like quality risks, process risks relate to a failure of existing operations, leading your business to fall short of its responsibilities to customers, partners, vendors, or investors. These issues might take the form of an accounting error that violates existing service contracts or a breakdown in accounts payable operations. 

Workplace health and safety.  

Companies are legally required to follow specific health and safety protocols. In the U.S., many of these laws are enforced by federal agencies, such as the Occupational Safety and Health Administration (OSHA) and U.S. Food and Drug Administration (FDA). In Europe, the equivalent regulatory bodies are known as the European Agency for Safety and Health at Work (EU-OSHA) and European Medicines Agency (EMA). 

 Compliance risk management process? 

  1. Gather input from a cross-functional team.
  2. Build on what has already been done.
  3. Establish clear risk ownership of specific risks and drive toward better transparency.
  4. Make the assessment actionable.
  5. Solicit external input when appropriate.
  6. Treat the assessment as a living, breathing document.
  7. Use plain language.
  8. Periodically repeat the risk assessment.
  9. Leverage data.

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