What Are The Different Types Of Compliance Risks? Here Is What You Need To Know

Table of contents

Open Table of contents

• What Is Compliance Risk?
  • Legal Impact
  • Financial Impact
  • Reputational Impact
  • Business Impact
• Different Types Of Compliance Risks
  • Political Uncertainty
  • Data Protection Laws
  • Conflicts Of Interest
  • Market Risk
  • Conduct Risk
  • Corruption
  • Quality
  • Environmental Risk
  • Health And Safety Standards
• Risk Analysis And Management
• Bottom line
• The shorter version

What Is Compliance Risk?

Organizations need to adhere to compliance rules set forth by regulatory bodies. Compliance risks signify the penalties these regulatory bodies may impose on your organization if it fails to comply with these rules.

Generally, all compliance documents contain the following details that are paramount to understanding the situations and risks:

1. Rules
2. Penalty for not complying with rules
3. All concerned parties in the legislation
4. Risk rating
5. Compliance status

Here are the categories, depending on the type of risk they impose:

Legal Impact

If you fail to comply with these laws and regulations, you may be slapped with some legal action. They include fines, penalties, product seizures, revoking of rights, and imprisonment.

Financial Impact

Failure to follow these rules can cause problems for the organization in terms of wealth. 

It can either be due to diminishing investor confidence, the company’s bottom line problems, falling share market prices, and a reduction in estimated future earnings.

Reputational Impact

Many reasons can affect the reputation of your brand. These risks are usually due to bad PR, reduced employee confidence, and low customer trust in the brand.

Business Impact

These factors inhibit a business’s ability to operate in a specific environment. Plant shutdown and trade embargo are some reasons for them.

Different Types Of Compliance Risks

Political Uncertainty

Elections are a big deal for businesses and organizations. Depending on the party in power, different laws can change or work differently. 

When there is uncertainty about the next political party in power, there is a risk of running into new regulations. These can cause massive stress in business operations.

Data Protection Laws

As the client or consumer data is stored in an organization’s database, there are many rules that they must follow. 

These include consent to use their data, data retention, third party access information, freedom to access their data, and more. 

Some of the regulatory bodies that are in charge of the data protection laws are CCPA and GDPR.

Conflicts Of Interest

Although common in the financial industry, the regulations state that investment brokers and other finance managers must avoid acting in their interest with customers’ money. 

The conflict of interest in securities is managed by the SEC (Securities and Exchange Commission).

Market Risk

These risks depend on the market of the stock or the product. Organizational managers must be aware of the bigger picture of the overall market to calculate risk and find safe alternatives like ETF.

Conduct Risk

These are internal risks with heavy consequences. Criminal cases such as sexual harassment, discrimination, and bullying come under misconduct and negatively affect the company.

Corruption

As an organization, you need to maintain a strict code to prevent your employees from engaging in bribery, fraud, intellectual information theft, and more. 

The entire organization will be held responsible for the actions of an individual. These activities will negatively hurt your company in terms of public scandals, reparations, penalties, and consumer trust.

Quality

You need to follow specific regulations and standards for your products and services. They are controlled by a wide range of institutions, the most common being the International Organization of Standards (ISO). 

The inability to follow these rules may result in product seizures, penalties, and even shutting down the business.

Environmental Risk

They are caused by the harmful impact on the surrounding flora, fauna, and ecosystem due to your organization. They usually arise due to pollution, the factory’s location, and toxic material dumping in a locality.

Many organizations deal with environmental issues. Some of them are the United States Environmental Protection Agency (EPA) and ISO.

Health And Safety Standards

Organizations must look after the health and safety of their workforce. They must employ safety procedures while at work or around dangerous equipment. 

Occupational Safety and Health Administration (OSHA) is considered the chief regulator of safety in the United States.

Risk Analysis And Management

The solution to all these risks lies in proper assessment and management of the compliance risks. 

Your organization may be keen on hiring a compliance analyst or manager to help with these issues. However, you need proper corporate compliance training to succeed in your career.

As a compliance analyst, you are likely to choose the following pattern to analyze and manage your risks:

1. Make sure that every employee understands the compliance rules and risks. You may need to get their feedback on the gravity and likelihood of each threat.
2. Use data analytics and data visualization to analyze and get a clear picture of the compliance data and risks.
3. Make sure that everyone understands their duty towards compliance and that it is a collective duty.
4. Keep reviewing the process and change wherever you think requires improvement.
5. Once you are through the risk analysis stage, you need to undergo risk management, depending on your company and its compliance risks.
6. If you are a first-generation compliance officer, it can be a challenging experience. You can start by forming a team to assess risks, analyze and handle them on a small budget.
7. You can turn a notch higher with compliance, using technology and software to help in the process.
8. If your company already has digital tools for the process, you can raise the bar by undergoing compliance patterns through automation.
9. Finally, you can use social media trackers and other real-time data to analyze and process risks early to manage them efficiently.

Additionally, you can ask the association of corporate counsel to help you with compliance problems.

Bottom line

There are laws to limit corporations on illegal or harmful practices that they need to comply with. Failure to comply may result in different types of risks. 

However, with careful analysis and a proper risk management team, you can forecast and stop such violations from happening.

Liked this article? Find more useuful content here:

• How to Get More Views on Youtube
• 4 Easy Steps to Get YOUR Website To The Top of Google in 2020
• Top 3 White-Hat Link Building Techniques That Google Loves

---

The shorter version

If you’re reading this because the workflow it describes is eating your week, that’s the kind of loop I build AI agents for. Two build slots open at a time.