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13
May

What Is Compliance Risk Management? Why Do We Need It?

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Compliance risk is a term that organizations often overlook. In cases of compliance failure, the company may face severe consequences like business disruption, reputation loss, heavy fines, legal actions, etc. Hence, organizations need to be prepared for compliance risk beforehand.

But to prepare for this new threat and evolving compliance risks, organizations need a robust risk management framework. This isn’t easy without the right technology and help. A CISO is an individual trained in handling GRC related issues and risk management frameworks. Therefore, organizations need a trained CISO to create risk mitigation and risk management plan and help the organization against hackers and no-compliance risks. There is no doubt any organization that fails to follow the rules of regulatory bodies faces severe consequences like business disruption, reputation loss, heavy fines, legal actions, etc.

In today’s tech-era with so much data, compliance risk management is not an easy task which the organization could handle alone. They need professionals with domain-specific knowledge on managing compliance risks and mitigating their consequences. This blog elaborates on what is meant by compliance risk and why an organization needs to adopt compliance risk management to safeguard themselves against non-compliance.

What Is Compliance Risk?

Compliance is defined as following a rule or order. Compliance Risk is the risk of violating the rules and regulations laid out by legislative and financial bodies, government, organizations, etc. Impact of no-compliance for a business could often result in legal action, imprisonment, loss of license, and the company shutting down.

According to the Data & Behavioural Science report by Ropes & Gray, 57% of senior-level executives feel less prepared to address risk and compliance. It implies that organizations need to be on the watch for compliance risk at all times.

Three types of compliance risk any organization could face are:

  1. Regulatory compliance
  2. Industry compliance
  3. Organization’s internal policies

Some examples of compliance risk are:

  1. Failure to manage data of the customer.

It is crucial for businesses to ensure the client data is protected does not fall into the hands of hackers. Many times, companies need to pay fines in case of privacy loss or data breach. A company could hire a third-party vendor or manage the data themselves.

  1. Failure to report unauthorized transactions.

Any suspicious money transaction must be reported to the fraud team. These sorts of transactions may involve a large sum of money moving in and out into accounts out of the blue.

Common Types of Compliance Risk

Compliance risks involve fines and penalties in case of failure to follow law and regulation. Some of the most common types of compliance:

1. Workplace health and safety

Any health and safety risk in the workplace falls under here. An organization should protect its workforce from any harm that may result in them in the workplace.

2. Data management and protection

Any company that fails to protect its client’s data is at risk of business disruption and reputation loss if hackers breach the data. It is essential companies stick to common data privacy laws set up by international bodies. The General Data Protection Regulation (GDPR) for the European countries is one such example.

3. Corruption

The act of bribery and fraud result in severe government penalties and fines. An organization should monitor its employee are not harmed by an act of corruption or fraud. Corruption in an organization leads to its reputation loss.

4. Quality

Failure to provide quality services and products to the customer may result in fines and penalties for the organization.

What Is Compliance Risk Management?

Compliance risk management is the art of identifying the risk, analyzing the severity of the risk, and mitigating any potential harm that may result from the risk to the company. It is the ability to supervise the risk of non-compliance as best as possible with the present resources and the obligatory threat a company faces.

Compliance risk management is always an ongoing process in an organization. The organization should constantly be vigilant of any potential compliance risk.

Some steps involved to maintain compliance risk management process are:

  1. Understanding the potential compliance risk that an organization could face.
  2. Designing risk assessment for the organization to assess the risk.
  3. Conduct the risk assessment to assess the various type of risk impact on the organization.
  4. Assessing the financial impact, legal impact, business impact, reputation impact of no-compliance.
  5. Allocating appropriate resources needed for risk mitigation.
  6. Carrying out a risk assessment and mitigation

Why Is Compliance Risk Management Necessary?

An organization must be compliant with the law and regulation set up by the governing bodies because:

  • It protects the clients and firm: It helps safeguard the organization from any future potential compliance risk like data breaches or organization violating laws etc.
  • Promote health and safety among workers: Organizations are bound to provide facilities to its worker and create a risk-free environment in work.
  • It makes it easy to look for potential compliance risk: Enterprise risk management ensures a trained professional finds every possible risk that an organization could face in case no compliance.
  • Helps in strategic decision making: The risk associated with any decision taken by stakeholder are analyzed not to cause any potential harm to companies’ reputation and profits.
  • Keeps the data and privacy of its client protected: Compliance risk management ensures privacy guidelines set up by governments are followed and makes sure the organization does not face fines and penalties from the regulatory bodies for neglecting the law.

Conclusion

It is not new we hear news of companies paying heavy fines, facing legal action & imprisonment, additional audits, and even company shut down due to not following the guidelines. These are the consequences a company suffers for non-compliance like failure to follow privacy laws, environmental laws, corruption, workplace harassment, etc. Yet, a large part we miss to see is that these penalties could have been avoided if there was proper compliance risk management in the organization from the start.

Compliance risk management is no more the responsibility of the head of the organization. Companies have an entire department to oversee discipline associated with governance, risk, and compliance (GRC). GRC is a set of policies and rules to ensure that companies run smoothly with their values, mission, goals, and risk tolerance. Generally, a Chief Information Security Officer (CISO) looks over all the risks associated with operating an organization. CISO reports directly to the CEO and makes sure there are no corners left unchecked for risk potential. A CISO is trained in risk handling and oversees overall Information security in the organization.

How to Become a CISO?

A CISO is well trained in all domains of risk management operations. EC-Council’s Chief Information Security Office certification (C|CISO) trains the individual in all five CCISO Information Security Management Domain. Five main core domain an individual is exposed to are:

  1. Governance and Risk Management
  2. Information Security Controls, Compliance, and Audit Management
  3. Security Program Management & Operations
  4. Information Security Core Competencies
  5. Strategic Planning, Finance, Procurement, and Vendor Management

CCISO certification is an industry-leading program that inculcates the real-world experience needed to succeed at the highest level of information security.

Become a Certified Chief Information Security Officer now!

References:

FAQs

What is meant by compliance risk?
Compliance risk is the risk associated with the organization’s non-compliance with the rules and regulations of the regulatory bodies. The danger of non-compliance for a company could be drastic, from legal action to even company shut down.
Read more: What Is Governance, Risk Management, and Compliance?
What is meant vendor risk management?
Vendor risk management (VRM) is the art of managing the risk that an organization faces in its relationship with its vendor. VRM makes the onboarding, vendor risk monitoring, etc., smooth, and easy for organizations.

Read more: Why It’s Time to Take Vendor Risk Management Seriously

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