Compliance risk management is the process of identifying, assessing, and monitoring the risks to your enterprise’s compliance with regulations and industry standards. This includes all the internal controls you put in place to assure that your business complies with those obligations, and monitoring those controls to confirm they’re effective on an ongoing basis.

A compliance risk management program documents the potential losses and liability your organization could face for non-compliance, including legal penalties, fines, business loss, and reputational loss; and then implements necessary remediation steps to keep those risks at acceptable levels.

How Risk Management and Compliance Management Differ

Compliance risk management is a subset of enterprise risk management (ERM). That is, ERM tries to address all possible risks that might disrupt your enterprise. Compliance failures are one such risk, but they are only one. Businesses also face many other risks that have nothing to do with compliance obligations.

That said, compliance risks are still a significant concern for any large organization. This is especially true for highly regulated industries such as healthcare or banking; and for publicly traded companies, which labor under extensive investor protection and securities laws.

Potential Risks of Non-Compliance

What happens if your business violates its compliance obligations? Such failures can bring monetary penalties, painfully high investigation costs, and in the most egregious cases, prison time for executives involved in wrongdoing. Depending on your industry, you could suffer a few different consequences.

Penalties and fines

Most state and federal laws and regulations include monetary penalties for compliance failures. Moreover, a company under investigation by regulators will need to pay lawyers, auditors, investigators, and other advisers as it works with the regulators to resolve the issue. Those investigation costs can often be several times larger than the actual monetary fine that might result at the end.

Damage to your reputation

Compliance failures – say, faulty consumer safety practices, wage and hour abuses, or accounting fraud – often end up in the news. The damage to a company’s corporate reputation can be quick and severe, and ruin years of carefully cultivated brand building.

Moreover, in the modern social media and online world, unhappy consumers, employees, or customers might complain about your business online. Those comments can linger for years.

Blocked access to your supply chain

Compliance failures at an international border, such as failing to pay import taxes or forgetting important documentation, could leave your business unable to access goods being shipped to you – or unable to deliver your goods to customers. Suppliers, distributors, joint venture partners, and other parts of your supply chain may also stop working with your business.

Industry-specific compliance risks

Many industries have laws specific to them, and each one carries its own compliance burdens. For example:

  • Banking. Banks must comply with regulations set by the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), and a number of other regulatory agencies. Financial firms also labor under laws such as the Bank Secrecy Act (BSA), the Investment Companies Act, and the Dodd-Frank Act.
  • Healthcare. Hospitals and other businesses that handle personal health information must comply with the Health Insurance Portability and Accountability Act (HIPAA), as well as reimbursement rules for government spending through Medicare and Medicaid.
  • Pharmaceuticals. The pharmaceutical industry has extensive quality control obligations under the Food & Drug Act; as well as Medicare & Medicaid rules and HIPAA privacy rules.
  • Consumer products. Manufacturers must comply with the Consumer Products Safety Act; plus various state consumer protection laws throughout the United States and overseas.
  • Retailers. Retail operations that process credit card transactions must abide by the Payment Card Industry Data Security Standard (PCI DSS) to keep credit card data secure, or risk losing their ability to process such transactions.

Compliance Risk Management Automation and Frameworks

To help with managing compliance risk, compliance officers and risk managers are wise to use governance, risk, and compliance (GRC) software. Solutions such as ZenGRC can help with every step of the compliance process or risk management process, including using a compliance framework such as ISO or COSO.

Worry-free compliance is the Zen way. Contact us today for your free consultation.

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