A very simple definition of risk is uncertainty. In today’s continually changing regulatory environment, businesses of all types and sizes must create and implement an effective compliance risk management program.
The goal of this program is to help manage compliance risk.
It’s important to note – managing compliance risk does not eliminate the risk. Instead, it balances risk versus reward.
Keep reading for some helpful and effective tips to help with compliance risk management.
1. Create a System for Risk Management
The framework for any risk management program should offer a method to communicate and document evaluations related to:
- Quantity of risk
- Quality of risk management
- Aggregate synopsis of the business’s risk
- Direction of the risk
The right compliance software can help with this initial stage of compliance risk management.
2. Define Your Business’s Tolerance for Risk
Use a risk assessment to determine your business’s tolerance for risk. To do this, you must consider the complexity and scope of your business activities, your market service areas, and the delivery channels for services and products you offer.
3. Identify the Top Risk Factors
The bigger the risk, the more extensive and in-depth the compliance risk management program has to be. This ensures the right controls are put in place to help mitigate any inherent risk, including activities.
The risk assessment conducted needs to calculate and incorporate residual and inherent risk.
Inherent risk refers to the level of risk before any controls are applied. Residual risk is the level of risk that remains after controls are put in place.
The calculation needs to encompass things like the quality of the risk to the business, the likelihood it will happen, and exposure.
4. Implement Set Regulations and Standards
The regulatory landscape is one that is constantly changing and shifting. This includes new regulations and new interpretations for the existing ones.
This means that regulations expect businesses to conduct ongoing assessments for:
- Vendor management
- Consumer compliance
- Unfair, abusive, and deceptive practices and acts
There may be other regulations to know and consider, as well, depending on your business and industry.
5. Make Regular Updates
It’s important to remember risk assessments are living processes. They have to be adjusted as regulations, market, offerings, and the management’s appetite for total risk changes.
It is important to assess risk from a perspective and current view of the business’s risk profile. This will help ensure the right steps are taken and that the right risk management practices are put into place.
Now You Know the Basics of Managing Compliance Risk
When it comes to managing compliance risk for your business, you have to take a proactive stance and approach. Keep the tips and information here in mind to ensure you take the right steps and make your business’s right choices.
Are you searching for more information about business management? If so, be sure to check out some of our other blogs.