As the world becomes increasingly connected and complex, the need for interdisciplinary risk management and a framework for monitoring and managing compliance only grows. A risk can quickly become a supply chain issue, which in turn interrupts organizational productivity, spilling over into many other vital aspects of your business.
Now more than ever, a plan for addressing uncertainty, keeping organizational objectives within reach, and managing regulatory compliance is paramount for long-term success and business continuity. GRC, which is shorthand for Governance, Risk, and Compliance, is the best way to instill solid business practices that protect your organization and keep things moving as smoothly as possible. This article features a comprehensive breakdown of the GRC system, what a GRC program entails, the benefits of implementing GRC software, and the best practices to reliably achieve objectives.
What is Governance, Risk, and Compliance (GRC)?
Governance, risk, and compliance (GRC) is the collective set of procedures that help organizations maintain their integrity and address uncertainty with respect to their business objectives. A well-planned GRC strategy with an integrated approach goes a long way. Think of it as an internal auditing system that helps companies manage risk.
First, let’s break down the acronym GRC into its three main components.
GRC Governance is making sure that the day-to-day organizational activities and critical capabilities are aligned with the overall business goals of the organization. Usually carried out by senior management, governance involves providing control mechanisms, policies, and procedures that allow management decisions to be effectively and systematically executed.
The goal of risk management is to identify any threats to the company’s objectives. Whether these are cybersecurity threats or regulatory mistakes, the objective is to foster a unified approach that puts your business units in a position to succeed. The response of a given risk depends on its perceived gravity and possible impact and can involve controlling that risk, avoiding it, or transferring it to a third party, through standardized practices.
Compliance considers the laws and regulatory requirements that impact each system within your organization. Compliance requirements ensure that your business processes follow standard operating procedures and protect itself from legal action or financial penalties.
These three pillars of GRC processes work in tandem to create an environment that manages risk and keeps organizations safe and honest. There are many ways your business will benefit from a governance, risk, and compliance framework. This is especially important for meeting corporate social responsibility goals. Each role in an organization is affected by governance, risk management, and compliance management in various (yet equally important) ways.
Organizational Roles and How They Benefit from GRC Processes
Chief Compliance Officers: Gain confidence in compliance and governance by deploying a centralized, configurable command center approach to enterprise RCM to monitor compliance status in real-time.
Chief Risk Officers: Mitigate the risk of non-compliance using workflow to assign change tasks to the lines of business and automatically track to completion.
General Counsel: Use expert guidance and save time with advanced analysis of regulatory documents that identify the impact on controls, policies, and processes.
Regulatory Change Managers: Save the many hours it usually takes to manually classify regulatory content – our GRC program generates AI-powered integrated collection technology to provide summaries with key document data already extracted.
AML Officers and Financial Crimes Team: Easily respond and quickly identify trends with automated summaries of key information, such as the penalty amount, respondent, and violation of enforcement actions.
Regulatory Consultants and Legal Advisors: Stay on top of the compliance data changes that affect your clients and their varying legal and regulatory requirements with real-time updates, summarized weekly emails, and personalized alerts.
Why Managing Governance, Risk, and Compliance is Necessary
Regardless of the industry, your organization operates in, a competent GRC program can mean the difference between success and failure. Whether your organization exists in the insurance industry, banking, or finance, risk is always right around the corner. Not to mention stakeholders have more demands than ever before.
Businesses in Every Industry Should Implement a New GRC System
Ransomware and data breaches plague business units both small and large. This is just one example of widespread risk in today’s digital world. Let’s not forget about how the influence of social media can affect your business. Here are the key reasons your organization needs to develop its GRC functions.
Rising pace and scope of regulatory compliance: With respect to personal data privacy issues, compliance regulations are on the rise in multiple countries around the world. As long as technology continues to evolve, so will our need to have safeguards and prepared compliance teams in place that reduce risk and address uncertainty.
The rise of ransomware: External risks from digital threats are on the upswing, whether they’re delivered by individuals or are state-sponsored, third-party risk management is vital. In 2021, the average total cost of a ransomware attack was $4.62 million, not even including the ransom. No entire industry can be safe from ransomware attacks, and 37% of all industries suffered a ransomware attack in 2021. GRC software can help protect you from ransomware attacks and data breaches. However, there’s still variation in which industries are more likely to be targeted.
Increasingly complex business structures: Organizations are becoming networked with an ever-growing number of third parties on both a local and regional basis. Address uncertainty by using GRC tools.
Stakeholders’ expectations are evolving: Stakeholders seek more transparency from their companies. Consumers also now have more of a voice when it comes to the brands and companies they support. Show your audience know they can trust your organization.
Integrated GRC Programs Statistics
Is it time to restructure everyday business practices at your company? Are your compliance risk management methods outdated?Many executives seek better implementation of GRC activities at their organizations. Take a look at a few head-turning integrated GRC approach statistics…
57% of senior-level executives rank “risk and compliance” as one of the top two risk categories they feel least prepared to address.
Only 36% of organizations have a formal enterprise risk management (ERM) program or GRC software.
69% of executives are not confident that their current risk management policies and practices will be enough to meet future needs.
62% of organizations have experienced a critical risk event in the past three years
44% of organizations plan to implement or expand/upgrade their existing implementation of GRC software or risk management software
Where does your company fall in these statistics? Does your organization also feel unprepared to address risk and compliance? Don’t wait too long before implementing GRC practices to help your organization achieve its goals. Partnering with a RegTech company like compliance.ai to assist your business with a strategic GRC program is advised for achieving principled performance.
What is RegTech?
Compliance.AI specializes in providing Regulatory Technology (aka RegTech) software solutions specifically for the financial sector. RegTech technology uses information technology to enhance regulatory monitoring, reporting, and other compliance processes for the financial services industry.
Benefits of Compliance Risk Governance withCompliance.ai Software
Wondering how RegTech can be an asset to your organization? Financial institutions, like asset management firms or banks, that adopt RegTech will surely gain a competitive edge. Do your current work processes feel disjointed and inconsistent? It may be time to take advantage of that will turn pre-existing compliance activities into a seamless, innovative process with automated tools.
Deliver transparency and streamline your transition
Mitigate compliance issues by deploying an RCM command center to gain insight into the regulatory change management and compliance management functions. Leverage the industry’s proven and trusted implementation methodology to move away from manual processes and meetings to adopt standardized and repeatable regulatory change management processes aligned to your specific compliance model.
Scan the horizon and filter out the noise
Compliance.ai is a robust GRC software that automatically monitors regulatory updates from government agencies, such as the CFPB, DOJ, DOL, FDIC, FRS, OCC, TREAS, FFIEC, and OFAC – but delivers only the content that is relevant to you. The information also includes guidance on topics important to you – such as Payments, Privacy, Securities Cybersecurity, Privacy, Payments, Securities, and Crypto-currency – published by FPA, AFT, and WFA.
Analyze impact and take action
Compliance.ai’s Obligation Analysis tool is a GRC software that relieves the burden of line-by-line analysis. Instead, we provide a summarized list of obligations for each regulatory document and identify jurisdictional differences.
Initiate workflows and break down silos
Compliance.ai improves budgeting and resource planning by helping managers get an accurate read into workloads and important deadlines. Our intuitive workflow technology promotes collaboration and ensures that all activities are monitored and completed.
Improved operational efficiency
Creating a GRC framework often leads to automating common processes due to the continuous monitoring of controls, KRIs and exposures to risk. This results in more efficient ways of running operations and helps reduce the amount of substantial duplication across your organization.
Collect evidence and speed audits
Audits and exams are a fact of life, but findings and enforcement actions don’t have to be. Our solution automatically collects evidence that obligations have been met and delivers accurate, third-party-certified reports to provide auditors with the assurance they need.
Utilize higher quality information
By following an integrated approach to governance, risk, and compliance, your management team will have a holistic view of the organization as a whole and therefore, be in a better position to make more intelligent and productive decisions.
Experience reduced costs
By defining business rules, reviewing and consolidating controls, and visualizing your GRC roadmap, your organization will experience lower costs due to implementing effective governance risk management activities.
When Governance, Risk, and Compliance is Mismanaged
When GRC programs aren’t properly implemented, it can mean bad news for any organization. Choosing to ignore or use underdeveloped GRC practices will result in…
Increased unpredictability and the inability to be flexible when surprises happen
Being ill-prepared for risky third party relationships
Higher costs and high risk
Little to no insight on how to mitigate risk, even if you see it coming
Potential damage to your business reputation
Legal penalties and financial retribution
The most common indicators of poor GRC…
Poor Governance and “Tone”: The organization has a tunnel vision-like focus on the short term that causes them to mortgage future success on small short-term gains. There is evidence of undeliverable strategies, extreme performance pressures, unrealistic expansion plans, inadequate executive experience and/or a “warrior culture” and unhealthy internal competition creating incentives for bad behavior.
Reckless Risk Taking: The organization’s incentive compensation structure and culture drive and rewards inappropriate risk-taking behavior. In 2016, Wells Fargo was sanctioned to pay $3 billion in fines to the US for a fake account scandal. It was found that top-level executives had created a toxic sales culture that pressured employees to open new accounts by any means necessary – even if those means were illegal.
Inefficient Risk Assessment: The organization conducts subjective and often biased assessments that are influenced by past experience, foster groupthink, and are skewed to meet the desired results.
Assessing GRC Maturity
There is no single correct way to manage governance, risk, and compliance, however, your system must be able to keep up with constantly changing industry needs. Otherwise, it may be time to reconsider your business approach. Even the most proficient risk management solutions can have room for improvement as the environment and capabilities continue to evolve.
The best way to assess an organization’s GRC framework is to adopt a risk maturity model. The model will help you compare your current level of risk management to where you want to be. It provides a benchmark for your business units and helps you decide whether to invest more money and resources into risk management as the environment changes.
There are multiple models to choose from. The governance, risk, and compliance model we’ll discuss in this article contains 5 levels of maturity: Ad hoc, preliminary, detail, integrated, and principled performance.
GRC Capability Model
Ad hoc: The management of risk is undocumented, chaotic, and depends on individual heroics. Risk is dealt with in a state of panic, leaving your organization vulnerable. There is no synergy or game plan for addressing challenges.
Preliminary: Risk is defined in different ways and managed separately from goal setting. Process discipline is unlikely to be rigorous. Roles and responsibilities might be assigned to specific people within the organization (e.g. Compliance Officer). However, in many cases, these people also have other, sometimes conflicting, areas of responsibility.
Defined: A common risk assessment/response framework is in place. Roles are largely defined and carried out. The entire organization has been educated on risk management. Action plans have been prepared and are activated in response to high-priority risks.
Integrated: GRC activities are coordinated across business activities. Common risk management tools and processes are used where appropriate, with enterprise-wide risk monitoring, measurement, and reporting. Alternative responses are analyzed with scenario planning and other techniques, such as Monte Carlo simulation.
Metrics are in place to measure response time and the efficacy of risk mitigation. But the emphasis remains on managing a list of risks. Discussions of risk at the executive committee and board levels are separate from the discussion of strategy and performance.
Principled Performance: Managing risk shifts from merely anticipating a list of potential threats under integrated GRC, to wholly adopting strategic planning and capital allocation in order to reliably achieve objectives. A reasonable amount of risk is taken to succeed instead of striving only to avoid failure. ERMs are in place to notify risky events before they happen. Strategy and performance conversations do not happen separately.
The ever-growing need for GRC
Risk is more prevalent than ever, from ransomware and social media influence to interconnected business departments, and the overall globalization of commerce. A successful organization is one that invests resources into developing an effective means of governance, risk management, and compliance management, otherwise referred to as a GRC framework.
Effective GRC establishes the processes and systems that enable risk-aware decisions at every level. Investing in the best GRC software for your company, such as Compliance.ai’s Regulatory Change Management software, will reduce costs, improve agility, eliminate vulnerabilities, help reach strategic business goals, and guide performance management. If your business is in the FinTech industry, Compliance.ai has the right GRC system for you.
Compliance.ai is the only regulatory change management software that is designed to mitigate risk, reduce costs, and increase confidence in compliance status for the entire enterprise in the banking, financial services, and insurance industry.
Don’t leave something this important up to chance or employees without experience in this business function. Our customers use Compliance.ai to automatically monitor regulatory updates, identify obligations, and ensure required changes are completed.
There’s no longer a need to stress about keeping up with constantly changing regulations and spending hours analyzing endless data. Leave it to the experts with innovative, proven technology that can get the job done properly. Enjoy peace of mind knowing we can help you improve your operational environment and how you conduct your day-to-day business.
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