5 Key Steps in Conducting a Compliance Risk Assessment
April 29, 2022
Corporate compliance is an essential part of any business plan. It refers to the process of making sure that your organization—including employees—upholds all state, federal, and global laws, standards, compliance regulations, and ethical practices that are applicable to your work.
Regardless of the industry you’re in, compliance helps you mitigate risk, operate within legal parameters, and expand to new markets. This, in turn, reduces your risk of paying fines, getting involved in lawsuits, and facing closure. While many businesses set up their organization with compliance regulations in mind, it often becomes an afterthought in day-to-day operations. However, regulatory compliance management needs to be an ongoing effort.
To help you ensure that you’re up to date with new or changing regulations, it’s important to conduct regular compliance risk assessments. Here, we’ll go over everything you need to know to help protect your organization while mitigating unnecessary risk.
Current Compliance Risks and Regulations
The General Data Protection Regulation (GDPR)—one of the toughest privacy and security laws in the world—first went into effect in May 2018. While this is a European Union regulation, it applies to foreign businesses that target or supply consumers of affected countries with products or services. This means any organization that conducts business with people, companies, or entities in the EU needs to uphold the requirements of the GDPR.
Over the past few years, GDPR-like legislation has been making its way to the U.S., often on a state-by-state basis. California, Colorado, Virginia, Washington, and New York all have either similar laws currently in place or have proposed legislation similar to GDPR. These will raise new compliance risks for businesses in the U.S., especially as other states follow suit.
There are also higher standards of enforcement and compliance held at federal facilities, but there isn’t one overarching legislation for all industries and sectors. Instead, there are several sector-specific privacy and data protection regulations that partner with state-wide laws.
A few of these include the Health Insurance Portability and Accountability Act (HIPAA), the Gramm-Leach-Bliley Act (GLB Act or GLBA) for financial institutions, and overall compliance risk addressed by the Federal Trade Commission (FTC).
To make sure you’re in line with your industry and state-specific compliance program, consider working with a professional for a comprehensive risk assessment and risk management portfolio.
General Types of Risk Assessments
Due to the various types of legislation and compliance-related hurdles, several different types of risk assessments are available for businesses to use. In general, they can refer to anything you need to look at from an objective point of view. You can assess the risk of taking on a certain client, launching a new product, investing in new marketing materials, or even moving from location to location.
Risk assessment is a natural part of owning and operating a business, especially if your goal is to turn a profit. These types of risk assessments are usually performed by the chief information officer (CIO), chief financial officer (CFO), compliance professional, or other C-level executives.
What is a Compliance Risk Assessment?
Compliance risk assessment is specifically targeted at analyzing the current business operations to determine whether or not you’re operating in line with legislation. Due to the complexities of most compliance laws, many businesses are facing unknown risks. Depending on your industry, these risks can be minor or major.
For example, a small retail business with a few clients that do not adhere to compliance regulations may suffer a data breach and expose personal information of a few people. While this is still inherently bad, the personal information is only likely to contain names, phone numbers, email addresses, and potentially addresses or saved payment information.
On the other hand, if a hospital isn’t in line with compliance regulations and they suffer a data breach, medical histories, personal data, and other sensitive information of thousands of people can be exposed and leveraged for ransom.
Compliance risk assessment is, therefore, an integral part of ensuring that you safeguard your client data, employee information, and the overall integrity of your company image. The risk assessment will analyze every possible way that your organization may not be upholding its regulatory compliance duties and regulatory obligations. It’s often run and managed by an appointed chief compliance officer or manager from the compliance department to ensure that the assessment is objective.
This is performed holistically, so the entire organization from top-down and bottom-up is examined in great detail. A compliance risk assessment will include details of all the various industry standards, rules, and laws that apply to your business based on size, location, and industry. It then details how well your company is upholding each law that applies to you and whether you’re in violation of any compliance regulations. It also takes into account how you’re mitigating current risks and lists any residual risks, also referred to as uncontrolled risks.
The Purpose of a Compliance Risk Assessment
When you receive the data from a compliance risk assessment, you’re able to see where your company is excelling in privacy and protection and where you need to make changes. Therefore, the purpose of a compliance risk assessment is to analyze and identify any potential hazards or violations your organization is facing and clearly define the consequences of failing to address shortcomings.
This type of risk identification shouldn’t be ignored as doing so can lead to decreasing company image, lawsuits, and eventually forced closures.
Compliance risk assessments should be an overarching approach that includes a thorough assessment of all departments. As mentioned, it’s a holistic approach that covers everything from the risk of data breaches, the strength of IT systems and firewalls, wrongful financial reporting, corrupt allegations, and more.
Compliance risk assessments will clearly state the rules, regulations, and internal policies your organization should be complying with and how well you’ve fulfilled those requirements.
When conducting the assessment, a compliance officer will analyze the company with a fine-toothed comb. Risk assessments should be performed regularly to ensure your organization stays in line with the dynamic compliance requirements for your industry, location, and client base.
Why Are Compliance Risk Assessments Important?
Even if you are 100% in line with compliance regulations and procedures, no company is completely immune from risk. Small, medium, and large-scale organizations are all exposed to risks, regardless of if they’re public or private, state or federal, and profit or non-profit companies. Using a regulatory chage management software will help you protect your business and longevity.
The return on investment of undergoing compliance risk assessments can help you avoid abuse, fraud, discrimination, and waste. However, it needs to be integrated with organizational-wide efforts and external regulations to be effective.
Compliance risk assessments can help you measure shortcomings and create a plan for overcoming violations. In particular, some of the common compliance issues that risk assessments can help address include corruption, privacy or data breaches, harmful employee behavior or harassment, and unsustainable strategies that go against EPA standards.
Benefits of Regular Compliance Assessments
With penalties for violations increasing in severity, there’s no reason not to have regular compliance risk assessments. Some of the primary benefits of conducting a risk analysis include the following:
Save Time and Money
Undergoing regular compliance risk assessments can help your business save time and money. While the act of conducting the risk analysis will take some effort, business managers and owners don’t have to deal with non-compliance issues that can occur down the line. This makes it easier to handle any legal issues if they occur without spending hours on negotiations or working with lawyers to counteract problems.
You’ll also save money, especially when you invest in risk management. This helps you avoid unnecessary legal costs and overhead business finances. In general, risk assessment reduces the risk of lawsuits, fines, and penalties associated with non-compliance. Risk assessments can also reduce the likelihood of workplace accidents as safety audits can identify areas that may be more prone to issues.
Strengthen Brand
People want to work with companies that have a good reputation. If you bypass rules and regulations, you put your consumers at risk and therefore, severely impact your overall image. Compliance risk assessment can help protect your organization’s reputation. The ability to be transparent in compliance laws, environmental standards, company treatment, and information disclosure will go a long way in gaining the trust of prospective clients and long-term customers.
On the other hand, organizations fined for non-compliance tend to fall victim to negative press, which can ruin your brand and public image.
Demonstrate Care
Undergoing regular compliance risk assessments shows your customers that you care about their privacy. When you take compliance issues seriously, you demonstrate that you are committed to their welfare.
Improve Business Decisions
It can be impossible to make strategic business decisions without fully identifying and understanding the risk management issues. With an in-depth understanding of rules and regulations, your company’s compliance, and any shortcomings, you can make better business decisions for your future.
If your organization has either knowingly or unknowingly violated regulatory obligations, there are still options to counteract the consequence. If you can demonstrate that you have a compliance program in place and are working towards meeting the obligations, you may receive a break from severe legal penalties and repercussions.
When simply having the presence of an effective compliance program in place could lead to leniency from regulators, it’s worth the investment.
5 Key Steps in Conducting a Compliance Risk Assessment
Creating an effective regulatory compliance management software and or program requires ongoing communication between your organization and a compliance officer. This is because a clear picture of organizational operations is required for overall risk assessment. To perform a successful compliance risk assessment, the following steps should be taken.
Understand the Current System
The first step in conducting a compliance risk assessment is understanding where your company currently stands. There needs to be a thorough analysis and documentation about any processes, systems, and transactions that occur on a regular basis and sparingly throughout the year. This process should include interviewing any business personnel who run departments within your company and execute processes independently. Surveys can be conducted to give you feedback about the current state and opinion of compliance-related issues amongst your employees.
Map Potential Risks
Once you fully understand the big picture of how your company operates within a compliance landscape, you need to identify specific areas of risk. You can do this by clearly identifying any compliance risk contact points or areas that may present a risk of violating applicable regulations within your industry. This overview needs to be comprehensive and include every aspect of your business.
Assess Controls in Place
Next, look at the safeguards you currently have in place. Consider how you’re preventing, detecting, and correcting any violations that may occur throughout each quarter. You should have clear procedures in place to maintain cohesion across your workforce and give people a chance to provide feedback regarding new risks. If something were to happen, would the violation be detected, or would it go unnoticed? You should have enough contact points in place to address any violations as soon as they become known.
Determine Compliance Enhancements
During the compliance risk assessment, you should enhance any areas where violations would go unnoticed. Oftentimes, enhancing risk areas will take some time and can’t be completed all at once. Determine which ones take priority and start expanding resources to high-risk areas. Compliance enhancements with the biggest effect should be handled first.
Update Risk Assessment Regularly
Compliance risk assessments are not something that can be done once and then forgotten about. They need to be updated regularly to coincide with the dynamic operations of your business. Undergo a new risk assessment after any major transitional periods or if regulations are changed on a state or federal level. This will provide you with the best protection possible and ensure that you’re
Compliance assessment is an important driving factor in business success. As new rules and compliance regulations are released and the U.S. migrates towards similarities with the GDPR, businesses should expect more intense legislation. Compliance.AI can help you cut through the noise of regulatory change, so you never miss an obligation. Contact us today to learn more about how our corporate compliance program can help you speed up your business.
Asif Alam is the Chief Executive Officer at Compliance.ai. A leader in shaping disruptive technology, his experience includes building products using AI and natural language processing for GRC, payments, lending, risk, trading, and new solutions, from Fortune 500 companies to startups.
In his most recent role, he served as the Chief Strategy Officer of ThoughtTrace, unlocking new revenue streams and markets, and reignite portfolio growth. ThoughTrace was then acquired by Thomson Reuters in 2021.
He brings more than 20 years of management and business experience; increasing profitability, unlocking new revenue streams and markets, and reignite portfolio growth for companies like Thomson Reuters, Crux Informatics, and Finastra. Asif is a forward-thinking expert driving engagement via client forums, public presentations, and white papers.
Cesar Lee is a Principal at WRV, a venture capital fund focused on early-stage investments in hardware, semiconductor, and other technology-related companies. Previously, he was an investment professional at Riverwood Capital, a technology-focused, late-stage venture capital, and private equity fund. He began his career at RBC Capital Markets, where he was part of the Mergers & Acquisitions group for two years and the Equity-linked & Derivatives group for one year. While at RBC, Cesar spent a majority of his time working on M&A advisory transactions for technology companies.
Cesar’s investment experience includes buyouts, later stage, early stage and seed rounds. Cesar has completed transaction in the U.S., Latin America, and Asia, and in technology sectors including data centers, software, semiconductors, consumer electronics, robotics, big data, and internet.
Maria Devassy is a RegTech, Content, and Technology leader with over 20 years of experience helping companies bridge the gap between technology, product, and business. Maria has held leadership positions with MetricStream, KPMG, Oracle Corporation, and other technology companies. She has launched several successful RegTech products, business partnerships, and advised Fortune 100 clients on risk management, audit, advisory, and compliance business across Industries.
Hugh Cadden is a recognized expert in derivative financial and trading markets including futures, options, and swaps. Hugh is currently a senior consultant and expert with OnPoint Analytics, Inc. an economic, finance and statistical consultancy specializing in expert testimony for complex litigation. He has been specializing in the organization, operation, and regulation of financial and trading markets for over 40 years. Hugh’s experience includes both the public and private sectors and he has held senior level positions with the U.S. Commodity Futures Trading Commission including serving as Director of the Division of Trading and Markets and Deputy Director of Enforcement. He has been qualified as an expert on financial and trading market matters before the Commodity Futures Trading Commission, the Securities and Exchange Commission, the U.S. Tax Court, Financial Industry Regulatory Authority, National Futures Association, American Arbitration Association and federal courts.
Drake Ross is a former bank regulator who specialized in compliance with consumer protection regulations while at the OCC, FDIC, and OTS. While at these agencies, he provided extensive training and guidance and developed materials to ensure full comprehension and proper application of rules, laws, policies, and guidance, and served as a Subject Matter Expert in numerous areas. Because of his expertise, he often presented at agency and industry events. He also played a significant role in successful windup of the 2008 IndyMac Bank failure, where because of his extensive knowledge of the FDIC deposit insurance regulations, he was called upon to administer highly-complex insurance determinations.
Carliss Chatman is an Assistant Professor of Law teaching Contracts, Agency and Unincorporated Entities, Corporations, and Transactional Skills. Her work is influenced by over two decades of service on non-profit boards and involvement with community organizations. Through leadership positions, she has developed expertise in corporate governance and non-profit regulation. She has also been instrumental in strategic planning and fundraising efforts. Prior to law teaching, Professor Chatman was a commercial litigation attorney in Houston, Texas. In practice, she focused on trial law, appeals and arbitration in pharmaceutical, health care, mass torts, product liability, as well as oil, gas, and mineral law. In addition to negotiating settlements and obtaining successful verdicts, Professor Chatman has also analyzed and drafted position statements regarding the constitutionality of statutes and the impact of statutory revisions for presentation to the Texas Legislature.
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Mariam is an Operating Principal at Cota Capital. Mariam has experience providing guidance on strategic and operational planning to Venture and Growth stage companies. Prior to Cota Capital, Mariam spent her career in management consulting as a Director at KPMG. She has experience leading global transformation programs and developing innovative service offerings for Fortune 500 companies in the Technology sector. Mariam has an MBA from UCLA’s Anderson school of management with an emphasis in Finance and Entrepreneurship. She has a Bachelors in Science in Finance and a Bachelors in Science in Economics from Santa Clara University.
Chris Callison-Burch is an Associate Professor in Computer and Information Science Department at the University of Pennsylvania. His research interests include natural language understanding and crowdsourcing. He has served the Association for Computational Linguistics as the General Chair for the ACL 2017 conference, as an action editor for the Transactions of the ACL, as an editorial board member for the Computational Linguistics journal, and an officer for NAACL (the North American chapter of the ACL) and for SIGDAT (the special interest group for linguistic data and corpus-based approaches to natural language processing)
Tom Ladt is an experienced executive and investor. Tom has lead and served on the boards of several public and private companies serving highly regulated industries such as technology, healthcare, real estate, and food processing. Tom has also served in key governmental roles and on numerous community boards.
Jeroen Plink is a global executive with a proven track record of developing and growing businesses, teams, and technologies with innovation and passion. Jeroen was CEO of Practical Law US during its acquisition by Thomson Reuters. He now serves on numerous boards and acts as a strategic consultants for start-ups.
Global Legal and Compliance executive with 15+ years of success in the SaaS technology and financial services industries. Partner to the CEO and executive team in corporate transactions, business development, product expansion, and regulatory navigation during periods of intense growth and organizational change. An advocate of effective risk management that starts with sound business practices and putting the customer first.
Richard Dupree has held multiple Risk, Compliance and Operations positions at regional, national, and global financial services firms including Wells Fargo, Silicon Valley Bank, Bank of the West and BNP Paribas. Rick currently advises FinTechs and RegTechs and sits on industry panels, contributes to industry whitepapers, thought leadership efforts, and speaks at industry seminars on Risk and Compliance challenges faced by banks and FinTechs.
Brian advises clients on legal and regulatory compliance in the financial, tech, and procurement sectors. His passion is helping businesses succeed in heavily regulated environments. As counsel and trusted advisor to businesses of all sizes, and as a former regulator, policymaker, and federal official, Brian acutely understands the unintended burdens that even well-intentioned government requirements can put on innovation and business growth, as well as how to create policies that strike the right balance.
Brian served as National Ombudsman in the Obama Administration, leading the federal Office of Regulatory Enforcement Fairness in assisting hundreds of startups, entrepreneurs, and small business owners in every industry and every state.
Dr. Marsha Ershaghi Hames is Managing Director of Strategy & Development at LRN, a leader in advising and educating organizations about ethics and regulatory compliance, as well as corporate culture, governance and leadership. With the focus of inspired behavior versus required behavior, LRN is a leading voice in the industry for companies to build ethical cultures instead of “check-the-box” compliance approaches. She’s advised Department of Justice corporate monitors on successful program transformation under CIAs (Corporate Integrity Agreements. With over 20 years of experience in leading multinational ethics and compliance strategies, Marsha has become a highly sought-after thought leader on leading Corporate Compliance and Ethics practices.
Carla Carriveau is currently the Senior Managing Counsel at Wealthfront, an automatic investment service firm in Redwood City, California. Carla was previously Senior Counsel, Division of Trading and Markets, at the United States Securities and Exchange Commission. As a former regulator with over 15 years of experience in helping small businesses navigate legal and regulatory needs in the financial services sector, Carla advises Compliance.ai on financial services regulation, the regulatory landscape and industry practices.
