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An organization needs to ward off a multitude of risks both existing and potential. What’s more – these risks are constantly evolving in their degree of complexity and regulatory severity. Without identifying these new and evolving risks in time, your organization can be exposed to heftier violations and monetary penalties. This is why it is critical to have a risk assessment regimen conducted annually. Risk assessment is a process to identify and address vulnerabilities to internal and external threats. Essentially, it acts as a gatekeeper for your regulatory compliance, backed by rigorous self-audit and controls testing.
There are two main risks that affect a business: A risk to its customers and a risk to the business itself.
These risks can be internal or external. Internal risks range from customer due diligence to cybersecurity measures and data breach notifications; whereas external risks span anything from cyber attacks to geopolitical events and regulatory changes.
Some risks, however, can be both internal and external, like fraud risk. For example:
In case you’re wondering what the regulators are concerned about, it’s the public, i.e. your customers. However, your risk assessment should focus on both – the business and the customers that this business serves, because your business integrity impacts your customers. If you conduct business in multiple jurisdictions, then your risk assessment has to span the legal requirements of each individual jurisdiction to ensure you are covering all corners of your organizational risks.
The United States Sentencing Commission recently identified six offense types that accounted for 80.4% of all organizational offenders:
Interestingly enough, large organizations aren’t the only ones committing these offenses. The majority of organizational offenders are smaller organizations with fewer than 50 employees (70.4%), domestic (88.1%), and private (92.2%). So, even if you are a small organization, you have to ensure a proactive approach to mitigating risk exposure. This includes effective risk governance (i.e. policies), thorough risk assessments, and strong prevention, detection, and reporting measures.
Depending on the industry you operate in, some risks will take higher priority than others. And the more regulated the industry (for example, healthcare, finance and insurance, or manufacturing) – the more complex the risks, usually due to the higher impact on the customers or public well-being. The scope of risk prioritization usually encompasses:
Your risk prioritization will depend on the inherent threat the risk poses to the business or the customer. Every organization needs to develop their own risk rating system that accounts for their industry’s unique pressure points.
Below is a sample risk rating system to assist in developing your organization's risk assessment.
While completely eliminating all organizational risks is impossible, regular risk assessment contributes to better and improved risk prioritization and risk-mitigating activities. Risk assessment should be conducted proactively on an ongoing basis. This will help reflect the latest regulatory changes in your controls and policies.
There are solutions that help you rank risk severity in relation to the regulatory amendment. Regology’s regulatory change management solution enables you to assign risk priority – Very High to Very Low – based on the type of regulatory updates you receive. This can help to fast-track your risk assessment as new laws are passed and amendments are promulgated.
Overall, your organization needs to ensure the annual risk assessment incorporates:
If you would like to learn more about streamlining the identification and implementation of regulatory changes, as well as improving risk management in your compliance program, visit our dedicated page or download our free brochure.
