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Compliance and risk management are often considered to be different from one another though they are interrelated. The link between these two terminologies originated because of the introduction of variations in global compliance regulations that posed a threat to thriving organizations in terms of new regulations and business risks. Compliance regulations regulate business practices so that organizations operate in a fair and ethical manner. Along with compliance regulations, the changing landscape of the business ventures and economic culture over the past few years have compelled investors to associate with firms that stands true to the regulatory changes.
The barrier between risk management and compliance were broken in past decade by the 2002 Sarbanes-Oxley Act and the 2010 Dodd-Frank Act. These legislatures incorporated risk management as part of regulations thereby making compliance a vital element of a coherent risk management plan in an organization. Although legal requirements should not determine the comprehensive risk management plan of an organization, the latter still needs to identify and mitigate risks that the organization could potentially face, with compliance being one of the risks mitigating tactics.
Furthermore, with growing compliance regulations, various industries, and organizations have begun to realize how important it is to avoid compliance risks. Compliance risks are exposure to legal penalties or loss in material and the capital gain of an organization when it fails to act according to the laws and regulations of the industry. Therefore, in order to protect the company from risks, boards of directors have begun to oversee compliance regulations along with the risk managers.
Success in compliance risk management comes in effect with designing workflows that connect the relationships between compliance policies and the business processes with resources and regulatory standards. Even though risk management and compliance are segregated in the organizational structure, the interrelation between them demands a setup line that brings compliance with risk management planning. Together termed as compliance risk management, the process requires strategic planning of managing corporate compliance to meet the industry regulations within a framed budget and time. Streamlining the work involved in risk assessment will assist organizations in recognizing, managing, monitoring, and subduing compliance risks.
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