Compliance risk, governance and risk management are perhaps
the most common term used to cover organizations approach over these three
practices: Compliance risk, Governance risk management. These practices have
been around for quite a while, but many organizations don't fully understand
how each is a major part of managing a company, as the phrase itself
encompasses several different areas of a company.
As regulatory agencies such as the Federal Trade Commission
and the SEC continue to tighten their regulatory requirements, it has become
even more important that companies take an interest in compliance risk management. In fact, compliance risk has been
defined as a company risk that can be addressed by using multiple resources
including the internal controls of the business and external risk control, both
of which are essential components of the overall risk management process. In
essence, a company needs to identify both its own compliance risks and external
risks and manage them, using a variety of approaches.
Compliance risk is often described as the probability that a
business will violate some aspect of the regulatory standards or laws that
govern the industry. This could be in the area of business size, product
quality, consumer protection, or the distribution of products. When a business
fails to comply with these standards, there may be both an internal and
external source of loss. For instance, if a business does not have proper
compliance testing procedures in place, it could be subject to fines or even
penalties.
Internal controls are also considered to be a form of risk.
Because most internal controls are overlooked when it comes to risk assessment,
a business is more susceptible to potential risk than if internal controls are
well in place.
External risk can be broadly defined as a risk which has no
direct effect on the operations of the business itself, although an impact may
be felt by an outside source. This type of risk can come from third parties,
such as governments, competitors, or financial institutions, but it can also be
an indirect effect.
Compliance risk encompasses all three forms of risk in that
it can be determined by either internal or external sources. Although it is
important to monitor compliance, it is equally important to also identify a
number of additional factors which contribute to a business's risk exposure,
including product quality, compliance standards, customer protection, internal
control systems and best payment solutions.
As with any type of risk, it is very important to identify
your business as the source of potential risks. The reason is that a business
needs to know its strengths and weaknesses, including its ability to address
these issues. By doing this, a business can develop its strategy in terms of
where it needs to concentrate efforts on improving or mitigating those areas of
risk, as well as where it should focus on areas that are not considered high
priority. It may be difficult to change strategy over the course of time, but
you can determine what your business is truly good at and move on to the next
area in your strategy.
A company's ability to meet its compliance risk targets is
based on several elements, including its capacity to identify potential risks
and manage them. The company should also have an understanding of the current
regulatory requirements, as well as the ability to anticipate future regulatory
changes, so that it can develop and implement strategies to deal with them.
There are many organizations that are in the forefront of this area and offer
various services to help businesses with compliance risk, so it is worth
finding one that is not only known and respected within the business community,
but also has a strong track record.
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