What is Compliance Risk Management?

FAQs


Compliance risk is the potential for  material losses and exposures arising from non-compliance. An organization that fails to act in accordance with standards set by its industry, laws, or its own policies can find face legal penalties.

Regulatory compliance is often the most compelling risk since the laws enacting the requirements often bring heavy fines or even jail time for noncompliance.

Industry standards are considered the next tier of compliance risk. With prescribed best practices, these standards are not laws, in the same way as regulations, but they can be used within an industry to prevent a business from continuing operations.

Compliance with internal policies is the third tier of compliance risk. Regulations and standards incorporate the establishment of written documents that govern corporate activities. However, if workforce members do not follow the actions described in the written policies, the organization is not meeting its compliance requirement.

To manage these risks, many companies designate an employee dedicated to creating a compliance program. Called compliance managers, these employees create risk assessments to review the appropriate laws and standards. They then create a risk assessment that looks at potential financial forfeiture and reputational impact arising from noncompliance. After establishing the risk assessment, they then focus on risk management by analyzing likelihood and impact of risk, determining a risk tolerance, and finding risk mitigation strategies.

Compliance officers also manage internal audit documentation. To prove that a company not only established needed controls but that it follows written policies, most regulations and standards require an external assessment, or audit, that provides assurance over the company’s compliance stance.