Compliance risk is a company’s potential exposure to legal penalties, material loss, monetary fines, or damage to its reputation. Every type of organization has compliance risk, regardless of the kind of business, and must ensure it follows its particular industry’s laws, rules and regulations.
Why Compliance Risk Is A Real Threat?
Compliance risk is a significant threat for businesses. The total number of compliance risks directly affects a company’s current compliance status. A robust risk management program that includes compliance risk is the best way to monitor risks. A detailed risk assessment can highlight all the compliance risks.
According to Statista, cyber incidents are the most significant risks to businesses worldwide in 2022. A proper compliance program can help organizations to create a roadmap to safeguard and store data correctly. The program can show clear authorization rules and details on who has access to what data.
A compliance risk assessment can help a business understand its exposure risk. It can give information such as:
- The chance that the risk might occur
- Reasons why it might happen
- The impact that it will have on the business
Luckily, a compliance risk assessment can protect businesses as they can:
- Put their risks in order of priority
- Give them to the correct risk owners
- Allocate resources to try to minimize the risks
Potential Risks Of Non-Compliance
If your business doesn’t take steps to ensure compliance, you might face several potential risks. Here are some common compliance risks to understand the risk factors of non-compliance.
Hefty Fines and Penalties
Most federal and state regulations have monetary fines and penalties. An investigation by regulators will also involve costs for auditors and lawyers. The financial industry has the highest fines.
Reputation Damage
Investor confidence can take a hit, which could have short and long-term consequences for your business. Companies will be reluctant to work with a company with a bad reputation. Sometimes this damage can be irreparable.
Legal Action
It is in your interest to make sure you avoid legal action. The compliance industry has many severe legal penalties. Legal action could also lead to work stoppages and the possible closure of your business.
Build A Framework For Compliance Risk Management Success
You might be wondering how to identify compliance risk as a business owner. It might seem scary if you have never done anything like this before. However, with some planning, you can manage your compliance risks.
It’s about building the proper risk assessment processes to ensure success. Compliance risk assessments can link to other assessments and internal audit risk processes. However, pay attention not to miss legal or regulatory compliance risks.
Implement a Risk Management Framework
Implementing a risk management framework is the best way to handle compliance risks. Compliance risks can be complex, but using the correct methodology and risk management framework can help you make the right decisions.
Establish the Context
First, you need to establish the context. It’s essential to understand the compliance rules that affect your business. The framework helps the business by laying out the compliance risk landscape. It organizes it into different domains.
Identify Risks
Once you have established the context, it helps you to identify the risks. The framework you have laid out will help you identify and assess the categories of your compliance risk. The risks could be industry-specific or related to privacy, etc.
Analyze and Evaluate Risks
Now that you have identified the risks, you can put steps in place to analyze and evaluate them. The methodology that you use can help you to assess the risks properly. It would help to consider them objectively and subjectively to make the proper assessment.
Treat and Manage Risks
You are now fully aware of the potential risks. The next step is to have a systematic approach to treating and managing these risks. A practical framework can detail your risk mitigation strategies. You can then apply this to each compliance risk domain.
Communicate and Consult
You need to communicate these compliance risks to all the company’s stakeholders. The stakeholders can be anybody in the organization, including any third-party partners. Employee Compliance Training can help to reduce compliance risk.
Monitor and Review
Monitoring and reviewing how well you perform in your risk management is crucial to its success. Maintaining Regulatory Compliance needs to be a priority for the compliance department. It will also help to reduce compliance risks.
Record
You also need a system, ideally automated, to help you to record your risk management efforts. Maintaining accurate compliance records is a necessity and shows regulators you are compliant. It also allows you to retrieve records quickly.
The Final Words
Compliance risk management doesn’t have to be a stressful endeavor. You can manage it correctly by implementing a risk management assessment. Create a risk management framework and use a risk management methodology to get it right.
You can also take it to the next level by using an automated solution to monitor, record, and review compliance risks. It will be easier to manage and show regulators that you have a robust risk management system.