bankingciooutlook

Types of Compliance Risk

Banking CIO Outlook | Wednesday, August 03, 2022

Compliance risk is an organization's potential exposure to legal penalties, financial forfeiture, and material loss resulting from its failure to act following industry laws and regulations, internal policies, or prescribed best practices.

Fremont, CA:  Compliance risk is also called integrity risk.

Organizations of all sorts and sizes are exposed to compliance risk, whether public or private entities, for-profit or nonprofit, state or federal. An organization's failure to obey applicable laws and regulations can affect its revenue, leading to a loss of reputation, business opportunities, and valuation.

Types of compliance risk

An organization may be concerned with the following types of compliance risks:

1. Corrupt and illegal practices.

Legal compliance guarantees that the organization, its agents, and employees abide by the laws and regulations of the industry. Common compliance risks involve unlawful practices and include fraud, theft, bribery, money laundering, and embezzlement.

2. Privacy breaches.

General compliance risk is the violation of privacy laws. Hacking, viruses, and malware are some cyber risks affecting organizations. Also, if a company controls sensitive information, it must take the appropriate measures to protect that data and prevent privacy breaches.

3. Environmental concerns.

Many companies are integrating continuity into their business strategies and are offering their employees training and resources to help them achieve environmental compliance. These compliance risks deal with pollution and ecological damage an organization's operations can cause. Examples include destroying natural habitats, using harmful chemicals, hazardous waste disposal, and groundwater pollution.

4. Process risks.

Process risk is a failure to track an established procedure for completing a task or a deviation from the standard process. For instance, a company must have a documented system for accessing its network remotely. If an employee abuses the proper method for remote access, it is considered a process risk.

5. Workplace health and safety.

Companies are lawfully required to follow specific health and safety protocols. In the U.S., several of these laws are enforced by federal agencies, like the Occupational Safety and Health Administration (OSHA) and U.S. Food and Drug Administration (FDA). The equivalent regulatory bodies in Europe are the European Agency for Safety and Health at Work (EU-OSHA) and European Medicines Agency (EMA).

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