A Better Way to Manage Compliance Risks

Compliance risks can be challenging to identify and manage, particularly for organizations that are new to risk management. Traditional risk management approaches often don’t fit the bill when managing compliance risks. The penalties for noncompliance can be severe. These can include financial penalties, loss of customers, and even jail time for executives.

According to a report from the Ponemon Institute in 2011, noncompliance costs US organizations approximately $38 million in penalties and corrective actions per year. In addition, according to another study by Accenture, 20% of compliance failures are linked with an organization’s culture.

Organizational culture is the way employees are expected to behave in an organization. It includes how they work together and their shared belief systems. Employees tend to absorb the culture of their companies over time; if the company has a culture that emphasizes cutting corners, this is more likely to become part of employees’ expectations (whether they like it or not).

Integrity risks are closely tied with compliance risks. The main reason for the connection is that if employees think they are going to be incarcerated after a compliance violation, there is less motivation for them to commit fraud in the first place.

Proper risk management tools help companies facilitate due diligence, regulatory changes, and training, all of which prevent compliance failures strengthening company culture.

Proper risk management tools also reduce organizational risks associated with a lack of transparency, costly governance processes, and poor employee engagement. Compliance officers and the organization’s existing compliance risk management framework should be the first to address compliance risks. However, they may not have a clear picture of what is going on outside their particular area within the organization.

Compliance risks management can be a challenge for any organization. But with the right tools and processes in place, you can minimize these risks and keep your business running smoothly. This blog post will explore some of the best ways to manage compliance risks. Read on to learn more!

What are the Three Components of Compliance risk Management?

• Understanding the Regulator’s Expectations: Organizations must clearly understand the regulator’s expectations about compliance.
• Implementation of an Appropriate Compliance Framework: A robust and effective compliance framework must be in place to ensure that all regulatory requirements are met.
• Effective Implementation and Enforcement of Compliance Policies and Procedures: All employees must be aware of and comply with the organization’s compliance policies and procedures. Furthermore, adequate resources must be allocated to ensure that these policies and procedures are effectively enforced.
• Monitoring and reporting: Organizations must establish a system for monitoring employee compliance and reporting any violations.

What’s the Difference Between Risk and Compliance?

• Risk is the likelihood that an event will occur that could hurt an organization.
• Compliance is the adherence to guidelines or regulations set by a governing body.
• Risk management is a strategic process used to assess and mitigate risk.
• Compliance management is the operational process used to ensure compliance with regulatory requirements.
• Risk assessment looks at potential risks and how severe they could be, while compliance assessment examines whether specific regulatory requirements have been met.
• Risk mitigation strategies aim to reduce the severity of any potential negative impacts, while compliance enforcement measures are implemented to punish those who do not comply with regulations.

What is The Role of Risk and Compliance?

• Risk management identifies, assesses, and mitigates risks to an organization.
• Compliance is the adherence to laws, regulations, and standards.
• Risk and compliance work together to protect an organization from legal and financial harm.
• Risk management aims to identify potential problems before they occur, while compliance seeks to correct issues that have already arisen.
• Risk and compliance should be viewed as complementary strategies, not opposing ones.
• Risk management is a vital part of any compliance program, as it helps ensure that risks are identified and addressed before they turn into problems.
• Compliance officers ensure that the organization meets all regulatory requirements, while risk managers work to identify and mitigate potential risks.
• Risk and compliance professionals are responsible for developing and implementing risk management policies and procedures and ensuring that the organization complies with relevant regulations.

Who is responsible for risk management and compliance?

There can be multiple entities responsible for risk management and compliance, depending on the organization’s structure and operations. Typically, the following individuals or groups are responsible for various aspects of risk management and compliance:

• Chief executive officer (CEO): Oversees all company operations and is ultimately responsible for ensuring that the company complies with all laws and regulations.
• Chief financial officer (CFO): The holder is responsible for financial planning and ensuring that the company complies with financial regulations.
• Compliance officer: Oversees compliance with applicable laws and regulations.
• Chief information security officer (CISO): Oversees information security, including data protection and cybersecurity.
• Risk management committee or senior management team: Develops and executes the organizational risk management plan.

The Board of Directors is ultimately responsible for risk management. The day-to-day responsibility falls on the Chief Risk Officer (CRO) and the Chief Compliance Officer (CCO). The CRO is responsible for assessing and managing risks to the organization, while the CCO is responsible for ensuring that the company complies with all applicable laws and regulations. Other members of senior management also have a role in risk management and compliance, including the CEO, CFO, and General Counsel.

In other organizations, Risk management is typically the responsibility of the Chief Risk Officer (CRO) or a member of the executive management team. Compliance is typically the responsibility of either the compliance officer or the head of compliance.

Risk Management vs. Compliance Practices

• Risk management is the proactive identification, assessment, and prioritization of risks followed by developing and implementing strategies to reduce or eliminate potential risks.
• Compliance practices are a set of rules, regulations, or directives that must be followed to meet regulatory or contractual requirements.
• Risk management is a strategic process that the business goals and objectives should drive. Compliance practices are typically enforced from outside the organization.
• Risk management considers all aspects of an organization, while compliance focuses on specific areas such as information security, privacy, financial controls, human resources, and environmental health and safety.
• Risk management is necessary for all organizations, while compliance is mandated for highly regulated organizations.

Compliance Risk Management Framework

Compliance Risk Management Framework (CRMF) is a system used by organizations to assess and manage the risks of violating laws and regulations. The CRMF framework helps organizations identify, assess, mitigate, and report compliance risks.

The framework consists of five core components: risk assessment, risk response, risk monitoring, reporting, communication management, and change management. The CRMF is designed to be scalable to be adapted to the size and complexity of an organization.

The framework helps organizations identify potential problems before they become actual violations. Risk response procedures help organizations quickly respond to any incidents that occur.

The framework can be interlinked with the organization’s overall enterprise risk management framework. An organization compliance program was created to help public corporations manage their internal controls, designed to provide reasonable assurance that company objectives will be achieved.

Governance Risk Management and Compliance

Governance risk management is how an organization manages the risks associated with its governance arrangements. These risks can include strategic, operational, compliance, and financial risks. Governance risk management helps organizations identify, assess, and proactively respond to these risks.

Compliance risk management is how an organization manages the risks associated with its compliance obligations. Compliance risk management helps organizations identify, assess, and proactively respond to these risks. Compliance obligations can include regulatory requirements (e.g., Sarbanes-Oxley Act), contractual requirements (e.g., Payment Card Industry Data Security Standard), and voluntary standards (e.g., ISO 27001).

Benefits of governance risk management and compliance

• Governance, risk management, and compliance (GRC) practices can help protect an organization from financial damage, regulatory penalties, and public embarrassment.
• GRC can help identify potential risks and prevent them from becoming actual problems.
• Well-implemented GRC can improve an organization’s efficiency by reducing time spent on compliance tasks.
• Compliance requirements are often complex and ever-changing; GRC can help organizations stay updated with the latest regulations.
• GRC can give businesses a competitive advantage by helping them demonstrate their commitment to safeguarding customers’ data and protecting against fraud.

Ways to Manage Compliance Risks

• Establish and enforce written policies and procedures for compliance with applicable laws and regulations.
• Designate a senior corporate officer or other individuals with overall responsibility for compliance.
• Create an effective compliance training program for all employees.
• Periodically test and audit employee understanding and implementation of policies and procedures.
• Periodically review laws, regulations, and guidance to identify and manage compliance risks.
• Implement risk management strategies to address potential problems before they occur.
• Maintain open lines of communication with law enforcement authorities, as appropriate.
• Regularly evaluate the effectiveness of the compliance program in light of changing conditions.
•  Regularly audit your systems and review logs for signs of unauthorized access or unusual activity.
• Periodically review laws, regulations, and guidance to identify and manage compliance risks.

Conclusion

Risk management and compliance are two vital aspects of any business. Though they may seem similar, they have very different goals. Compliance is focused on ensuring that the company follows all rules and regulations, while risk management is concerned with reducing or eliminating potential risks. Different teams should handle risk and compliance to ensure that each area is managed effectively. A coordinated effort between these teams will help your business stay safe and compliant. Have you incorporated risk management into your compliance plan? Let us know in the comments!