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A significant part of running a business is ensuring compliance with internal and external regulations and policies. In other words, even if you’re smart with your spending or use excellent marketing strategies, your business won’t thrive if you don’t comply with laws related to your company’s nature. It affects everything from keeping you out of legal and financial problems to building trust and credibility among your employees and investors.
As a result, compliance risk management emerged. It is a process that includes understanding and managing compliance with laws and regulations and assisting in mitigating the risks associated with noncompliance. One of its components is compliant risk assessment, the crucial first step to making compliance risk management a success.
And in this article, we’ll learn more about the concept of compliance risk assessment and the keys that make it successful. But first, let’s take a closer look by understanding its definition.
What is Compliance Risk Assessment?
A compliance risk assessment examines how your company might fail to achieve its regulatory compliance obligations. It is a comprehensive analysis that identifies all compliance obligations that various laws, regulations, and industry standards may impose on your firm. In addition, it checks how well your current compliance program meets or falls short of those expectations. One little mistake in this step could impact your entire compliance risk management, affecting the company in legal, financial, business, and reputational aspects.
Keys to a Successful Compliance Risk Assessment
As discussed, compliance risk assessment evaluates the gap between what your compliance program does and what it should do in order to be considered an “effective” program by regulators. With that in mind, your mitigation actions must minimize compliance risks until they reach that effectiveness target. To help you, here are some steps you can follow:
1. Have a clear understanding of the current state of affairs
The first key to successful compliance risk management is looking for what already exists. As businesses build their name in the industry, they must document all the company processes, systems, and transactions. These documents will help you understand the company’s compliance and operations, uncover the risks, and find ways to mitigate them. If it’s insufficient, it will help if you also take advantage of meeting the people carrying out the company’s processes and systems. Interview them to see what inspires and stresses them.
2. Identify the risks in a broader scope.
Once you go through the first one, the next thing you should do is identify the risks. Businesses have different risk profiles. And while the scope of potential issues can be daunting at times. It is critical to cast a wide net.
Don’t hold back because of confirmation bias or other cognitive illusions. Instead, consider various risk variables from the collected data and other things you might overlook. It would be best to check on business activities, market dynamics, the regulatory landscape, geographic locations, reliance on third parties, possible clients and business partners, and the types of data held and transferred by the company.
One helpful tip for identifying the risks effectively is mapping out the contact points or specific corporate operations from different processes, systems, and transactions. By doing this, you’ll be able to manage each contact point one by one and not be overwhelmed by the amount of work you’ll do on different aspects.
3. Rank the risks based on severity and address the most severe ones first.
After identifying all potential risks, you must rank them based on severity for easy management. Use the first two steps to help you along the process. Once done, start addressing the most severe compliance risks since they will significantly impact your company.
For example, the confidential data you hold, including customer information, intellectual property, and others, are facing cybersecurity threats. Mitigating it should be your priority since its implication affects everything.
4. Determine which control measures you should take.
Your company is unlikely to have the resources to address all compliance issues simultaneously. But since you might already have existing control measures, you might want to exhaust all of that first. Examine the results and determine which control is effective on a particular problem. However, if they cannot address the issue to meet the current compliance regulations, the next thing you should do is dedicate more resources to policing high-risk areas than low-risk areas.
5. Update your compliance risk assessment from time to time.
Remember that your compliance program should be continuous and not a one-off event. Your risks vary as your company grows. Legislation affecting your business evolves as well. Furthermore, unmonitored, unenforced regulations tend to lapse over time. Therefore, you should continuously monitor your controls and re-test them regularly.
The Bottom Line
Compliance risk assessment is a crucial factor in business performance. Its goal is to take sufficient steps to identify risks and control them. And with our article, you’ll be able to be successful in your risk assessment practices. So, enhance your compliance programs from this day forward.
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