Compliance Risk Assessment: With the never-ending stream of regulatory changes and severe penalties for non-compliance, conducting a compliance risk assessment has become imperative for businesses in nearly every industry. In fact, according to MetricStream’s 2021 State of Compliance Report, 51% of organizations are keen on training and upgrading their compliance teams on emerging areas and technologies, while 76% of compliance managers are continuously scanning regulatory websites to track changes and assess their impact on the business.
But what exactly is a compliance risk assessment?
A compliance risk assessment is an in-depth analysis of an organization’s compliance posture with respect to specific laws, regulations, and standards. Its goal is to identify areas of non-compliance so an organization can take corrective action to mitigate potential risks.
In addition, compliance risk assessment involves identifying regulations that apply to the business, assessing how well the organization is currently complying with those regulations, determining what risks exist if the organization falls out of compliance, and establishing necessary corrective actions to mitigate the risks.
Reasons to Conduct Compliance Risk Assessment
Many businesses find conducting a compliance risk assessment daunting. Still, the severe penalties, from hefty fines, prison time, and reputational damage, that can result from non-compliance make it a necessary evil.
However, putting in the effort to conduct a comprehensive compliance risk assessment can actually benefit your business in several ways. Here are ten compelling reasons why your business needs a compliance risk assessment:
1. Comply with Regulations
There are a variety of regulations that businesses must comply with. Depending on your industry, business size, location, and other factors, you may be subject to different rules. Despite these, non-compliance of businesses can lead to significant penalties, including fines, legal action, and damage to your reputation.
2. Avoid Fines and Penalties
GlobalScape’s research presented that organizations lose an average of $4 million in revenue due to a single non-compliance event. It’s hefty enough that it could put your business at risk of bankruptcy. However, you can avoid these costly fines and penalties by conducting a compliance risk assessment and implementing the necessary controls to mitigate the risks.
3. Attract and Retain Customers
Customers are increasingly interested in doing business with companies that operate ethically and comply with regulations. One effective way to demonstrate your commitment to compliance is to secure a SOC compliance checklist to show your clients that your business adheres to the highest security standards to protect their data.
4. Reduce Insurance Costs
Insurance companies consider compliance risk when determining how much to charge for insurance premiums. If you can demonstrate that you have an effective compliance management program in place, the insurance provider will see that you are taking measures to minimize risks, and they will be less likely to pay out on any claims.
5. Appeal to Investors
Investors want to ensure that the business they are investing in is actively assessing their compliance posture and implementing actions to minimize the chances of a violation and protect their investment. So, establish a robust compliance program to give them the confidence they need to invest in your business.
6. Prevent Data Loss and Cybersecurity Breaches
Cybercriminals are becoming increasingly sophisticated, and data breaches are rampant in this digital era. If your organization stores sensitive data, you must implement security measures to protect it. A compliance risk assessment can help you identify potential vulnerabilities in your system and take steps to mitigate risks or prevent data loss.
7. Protect Reputation
Your reputation is one of your most valuable assets. It can take years to build a positive reputation, but only a short time to destroy. For example, if a healthcare company violates Health Insurance Portability and Accountability Act, patients may lose trust in the company and take their business elsewhere.
8. Improve Employee Morale
If employees see that your business is committed to compliance, they are more likely to have confidence in the company and feel proud to work there. In contrast, employees who see the company as lax in its compliance efforts may lose faith in management and become disgruntled.
9. Win Government Contracts
The government is a major source of business for many companies. But, they are required to award contracts to firms that comply with all applicable laws and regulations. So, if you want to win government contracts, you must demonstrate an effective compliance management program.
10. Avoid Litigation
Litigation is always a risk for businesses, but compliance violations can increase the chances of being sued. You may be subject to heavy fines or jail time if you are liable for a compliance violation. And in some cases, the damages awarded in a lawsuit can even bankrupt your company.
In today’s business environment, compliance is no longer optional- it’s a competitive necessity. So while risk assessments could lead to significant change, and managing change can be difficult, it’s empirical to take, especially when the desired outcome is to encourage new habits that improve results.
Keep in mind that by conducting a compliance risk assessment and implementing the necessary controls, you can protect your business from hefty fines and penalties, data breaches, and litigation. And most importantly, you can gain the trust of your customers, employees, and investors.