Compliance Risk Assessment
By VOS Consulting Group on Nov 25, 2023
A compliance risk assessment is a crucial process for organizations to manage and mitigate the risks associated with regulatory non-compliance. Here is a summary of key points about compliance risk assessments:
Understanding Inherent Risk:
• Inherent risk represents the potential harm when a risk is unaddressed.
• Understanding inherent risk helps determine necessary risk mitigation measures.
• Inherent risk analysis considers four domains: Legal Impact, Financial Impact, Business Impact, and Reputational Impact.
What Constitutes a Compliance Risk Assessment:
• A compliance risk assessment evaluates an organization's compliance with regulatory obligations.
• It identifies compliance requirements from laws, regulations, and industry standards.
• Common compliance risks include Data Privacy Breach, Mishandling of Protected Health Information (HIPAA), Lack of Disaster Preparedness, and Payment Card Data Breach (PCI DSS).
What Encompasses Compliance Risk:
• Compliance risk includes potential fines, penalties, loss of operating licenses, and reputational damage.
• Regulators often favor companies with robust compliance programs.
• Mitigation aims to reduce compliance risk to an "effective" threshold.
Steps in a Compliance Risk Assessment:
1. Identifying Risks: Identify relevant regulations, assess gaps, and evaluate potential non-compliance areas.
2. Mapping Risks: Associate risks with potential outcomes and affected parties.
3. Prioritizing Risks: Prioritize risks based on potential severity and address high-risk areas first.
4. Implementing Controls: Implement measures to mitigate risks and test their effectiveness.
5. Regular Re-Evaluation: Continuously monitor, test, and re-evaluate controls to adapt to evolving regulations and business changes.
Compliance Risk Assessment Frameworks:
• The COSO framework for internal control is widely accepted for internal control systems.
• It provides guidance, principles, and requirements for risk identification, mitigation, and control.
How Compliance Risk Assessment Differs:
• Compliance risk assessments focus on non-compliance with legal or regulatory requirements.
• Risks involve potential fines, legal consequences, reputational damage, and operational disruptions.
• Compliance risk assessments are typically overseen by the Chief Compliance Officer.
In summary, a compliance risk assessment is a structured process that helps organizations identify, prioritize, and mitigate risks associated with non-compliance. It is a vital aspect of risk management, ensuring adherence to legal and regulatory obligations.