What is compliance risk?

Compliance risk is the potential exposure organizations have to specific legal issues where non-compliance is a factor. Compliance risks are indicated by an organization not following specific rules, regulations, laws, and guidelines that govern its industry or sector.

Compliance risks can also occur when an organization is not following internal company policies, this can happen in broad terms like with particular company strategies, or on a more micro-level, like when specific employees within a company are not adhering to internal company policies concerning ethics or other important areas.

Compliance risk is also sometimes referred to as integrity risk. Both public and private organizations are subject to compliance risks, as well as non-profit and for-profit businesses, and even state and federal government organizations. When companies fail to comply with regulations, laws, and guidelines this can have a negative impact on profits and reputation.

There are many different types of compliance risks, here are some of the most common:

• Corruption or illegal behavior

When an organization stays in legal compliance it makes sure all of its employees, and the company as a whole, adhere to any laws or regulations that apply to its industry. Compliance risks in this area include activities like money laundering, theft, bribery, and embezzlement.

• Breaches of privacy

One of the common compliance risks is when organizations violate privacy laws. Companies sometimes handle extremely sensitive customer or member information, and this data can be subject to hacking, viruses, or malware intended to steal it if organizations don't take the right cybersecurity measures. All companies must take preventative actions regarding this matter.

• Environmental regulations and laws

Compliance risks in this area are associated with issues like pollution, environmental damage, and sustainable practices. Organizations are at compliance risk if they engage in any activities that threaten the welfare of the environment, such as using harmful chemicals or substances, and deforestation that results in the destruction of habitats in certain regions.

• Process risks

This type of compliance risk is often associated with specific employees of organizations. It happens when an employee or group of employees ignore or don't fully follow established procedures concerning specific tasks. For instance, most companies have strict protocols for accessing their networks remotely, and an employee who doesn't follow this is a process risk.

• Workplace safety and hiring practices

Regulatory compliance standards and laws are often provided by the federal government or branches of the federal government, like the Occupational Safety and Health Administration (OSHA), or the Equal Opportunity Commission (EEOC). These are just two prime examples but there are often many different governmental contributors to the regulations of the industry.