What Are The Different Types of Compliance Risk?
Recent years have seen a dramatic rise in the number of organizations that are focusing on risk management, specifically as it relates to regulatory compliance. The reality is that we are only seeing an increase in the number of regulatory bodies that exist, especially in industries such as finance, investment, technology, and health care.
The cost of non-compliance is a significant motivation for many companies. Consider the European Union’s General Data Protection Regulation (GDPR), which applies to any company or organization that does business with a citizen of the EU — even if they’re not physically located in EU territory at the time of the transaction. GDPR non-compliance comes at a tremendous cost with fines of $20 million or 4% of the company’s worldwide turnover for the prior fiscal year (whichever figure is greater.)
The reality is that there are multiple types of compliance risk that exist and awareness is critical if an organization is going to be successful with compliance risk management and mitigation.
What is Compliance Risk Management?
Compliance risk management refers to the practice of identifying, evaluating, and then taking action to mitigate the risks and losses that may arise from non-compliance with various regulations, laws, policies, procedures, and standards.
These regulations and laws may be established and enforced by government organizations or private sector organizations. The latter are often industry-specific.
An organization’s compliance risk management efforts typically involve the creation of a task force or committee that oversees the development and maintenance of policies and procedures that are intended to ensure compliance. This group is usually led by a chief compliance officer (CCO) who is tasked with keeping a company fully compliant. This is often a full-time job because compliance and risk management as a whole is dynamic. This is especially true of compliance risk management since efforts are centralized around an ever-changing regulatory landscape.
The Different Types of Compliance Risk
Compliance risk takes many forms, each of which must be addressed when developing a comprehensive risk management strategy. Notably, compliance is one of the three aspects of GRC — governance, risk, and compliance management.
The following are a few types of compliance risk that an organization must consider as they develop strategies, policies, and procedures.
Legal compliance is something that impacts every organization and business, regardless of size or industry. There are federal, state, and local laws that may apply and business leaders must be aware of all of these legalities or face some potentially ugly consequences. While incidences of legal non-compliance may result in fines and penalties, other illegal activities could result in criminal prosecution and even jail time. Legal compliance is one area where you don’t want to mess around because non-compliance can spell trouble — and potentially, the closure of your business.
Industry-Specific Regulatory Compliance
There are many industry-specific compliance risks, especially in carefully-regulated sectors such as finance and the medical field. These industry-specific regulatory bodies tend to be amongst the most aggressively monitored and enforced. This means that non-compliance can carry an especially hefty cost, ranging from fines and penalties, to reputation damage and even close-down orders that hold the potential to shutter a business.
Data Privacy Compliance
As companies collect increasing volumes of data — namely, personal data or other sensitive information — we are seeing more and more regulations arise surrounding data privacy. This means that data privacy compliance risk is a very real consideration for virtually every organization.
Regulations now exist to govern how companies handle, encrypt, store and delete data. In addition to data handling regulations, many organizations must also consider how they communicate their data handling practices. GDPR is one of the most prominent data handling regulations, although it is just one of many industry-specific and region-specific regulations that exist. The HIPAA privacy rule is one example of a well-known industry-specific regulation that addresses personal health information (PHI).
Environmental Regulatory Compliance
Environmental regulatory compliance risk is an increasingly important consideration for companies that have any sort of impact on the environment — air, water, land, noise pollution and so forth. Today’s society is more eco-conscious than ever before, which means that non-compliance carries a serious stigma that can devastate an organization’s brand image and reputation. So in addition to facing fines and incurring the costs of remediation for an adverse environmental impact, organizations may face repercussions that offend prospective investors and alienate customers/clients.
Health and Safety Compliance
Health and safety compliance risk is a key point to consider since it is highly-regulated and non-compliance can result in significant damage to both life and limb. In the US, the Occupational Safety and Health Administration (OSHA) develops stringent health and safety regulations that businesses are required to follow. Similarly, the US Food and Drug Administration (FDA) also plays a role in establishing and enforcing regulatory compliance.
Health and safety compliance can impact many aspects of a company’s operations, from the conditions within a structure and the personal protective equipment that employees are required to use, to the cleaning methods used on machinery, and the frequency of equipment maintenance. Organizations are also required to report certain incidents such as on-the-job injuries to OSHA and the agency has the ability to conduct investigations in certain circumstances. This can lead to fines and orders to implement changes that are designed to improve safety.
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Managing the Types of Compliance Risk
With so many different types of compliance risk facing today’s modern business, risk management may seem overwhelming. But this is where risk management software systems can be very useful. A well-built GRC software platform will feature risk management tools that help an organization to identify compliance risks, plan risk mitigation efforts and track those efforts as they are implemented. The best risk management software also includes monitoring tools that help a business to keep track of the ever-evolving regulatory risk landscape.
By establishing a risk management task force and leveraging the latest risk management software technology, you’ll be well on your way toward minimizing and mitigating the many types of compliance risk. At iTech, we have experienced GRC and risk management experts who deliver cost-effective risk management solutions to clients in a variety of business sectors. Contact iTech today to discuss your organization’s risk management needs.