Compliance Risk

Compliance risk arises from an organisation’s inability to deliver on key compliance criteria such as government regulation. Compliance risk is the risk category most within the control of an organisation. It usually manifests as a result of lost operational or corporate knowledge through changing personnel, a lack of awareness of the importance of particular compliance activity or in a lack of capacity or training to meet the requirements of new regulation. 

Risk indicators include:

• Complex operations
• Increased cost burden from reforms
• Chain of responsibility

In a similar way to operational risk, a common example of compliance risk is the need to upgrade or change facilities or processes required to meet new regulation. For example, the need to install new safety barriers can take time and resources and often need specific suppliers or expertise, which may be limited as the broader sector adapts at the same time. This can result in an organisation being non-compliant or unprofitable as it adapts. It can also affect access to government funding, through eligibility criteria and/or through competitive processes or through the inability to acquit government funding once received.

Having a firm handle on potential compliance risk is critical to ensuring the organisation can address such risk and manage the reputational impacts of current or future issues. GovernmentRisk360® does not provide an audit function for these risks but provides a lens to assess how compliance risk needs to be managed.