6 Steps to Compliance Risk Management

Compliance risk management is the process of recognizing an organization's potential risks and addressing those risks to avoid consequences such as financial loss, legal penalties, and reputational damage. Like a routine check-up at your doctor's office, risk management plans help organizations frequently identify, assess, and monitor issues that could cause severe challenges in the long run. 

Risk management is best tackled as a collective effort in today's business environment. All teams must work together with a shared understanding of their specific risk environment. 

A survey by PwC found that when organizations embrace risk management as a strategic organizational capability, they're five times more likely to be very confident in delivering business outcomes—like stakeholder confidence, a growth-minded risk culture, and increased resilience.

Let's take a closer look at the process behind risk management—how to create a successful plan and embed compliance into an organization's culture. 

Step 1: Identifying Compliance Risks

Complying with regional and industry-specific regulations is critical to do business with customers. Many organizations experience compliance risks if they don't have an effective risk management plan. Here are some common areas where compliance risk can be an issue:

• Due diligence issues

• Human errors

• Inadequate controls

• Insufficient training

Regulatory risk can appear when a new regulation or law changes. These changes might make some of your business activities illegal. Managing regulatory risk requires strategic thinking and monitoring of the ever-changing regulatory processes. 

Risk Assessment Process

Implementing a risk assessment methodology is a crucial component of compliance. The first step to assessing risk is to identify an organization's threats. Make a list of threats to your client's digital assets. From there, you can score these threats based on two key factors—likelihood and impact. The likelihood is the product of a threat that could exploit a vulnerability, while the impact is the potential loss associated with an identified risk.  

While obtaining quantitative data to apply to risk is helpful, risks must also be analyzed in the context of each other. Developing a scoring system that works with an organization's risk, threat, and vulnerability inventory is vital to building a successful risk management program.

Common Compliance Risks in Various Industries

Compliance issues vary from industry to industry, which is why it's crucial to know specific requirements for different business sectors. Take a look at some of the common compliance risks outlined in the 2023 Verizon Data Breach Investigations Report for the healthcare, finance, technology, and manufacturing industries. 

Healthcare—Within the healthcare industry, over the last three years, there's been a rise in data breaches caused by ransomware, malware designed to freeze or hold data until a ransom is paid. 

Finance—Over the past year, basic web application attacks and misdelivery errors have been among the top patterns for data breaches in the financial sector. 

Technology—In the technology field, the social engineering rate has slowly increased, affecting 20% of breaches in 2023 so far. 

Manufacturing—Hacking and malware are among the top two patterns in manufacturing data breaches. And while social engineering attacks are still relevant, they're a distant third this year. 

Step 2: Developing a Compliance Risk Management Plan

While it can be challenging for organizations to consider the threats and vulnerabilities to their business, facing these risks head-on through careful planning and evaluation can help ensure protection against today's many cyber threats.

Once an organization’s risks are identified and assessed, there are a few steps you'll want to take:

1. Examine current controls. Controls should be in place to address each identified risk in the early steps of a risk assessment. After examining current controls, implement a plan of action with continuous evaluation of the controls and their associated risks.

2. Monitor the effectiveness of each plan. Effective risk management programs should be dynamic in that they never remain entirely the same—they should be updated to include new risks, new situations, and new aspects of your enterprise. 

3. Reevaluate and start again. Once an organization has determined the effectiveness of their controls, the process begins again. The good news is an effective risk management plan is like an exercise routine—it gets easier with time. 

Step 3: Implementing Compliance Risk Controls

Now that you’ve established the steps for a satisfactory risk management plan, you’re ready to implement the plan through control strategy and documentation. 

Defining Risk Control Strategies

Because every individual risk is slightly different, you’ll want to treat each risk with appropriate measures. 

Here are four main strategies for addressing risks: 

• Reducing the risk means taking steps to mitigate it while still realizing the risk is possible.

• Transferring involves insuring against the risk, meaning even if the risk becomes a reality, you have the means to recover from it.

• Accepting means being willing to pay for the cost of the risk by not developing any controls. This is sometimes appropriate for minor risks when the cost of reducing it outweighs the risk itself.

• Avoiding the risk is staying away from the risk entirely. While this negates the damaging effects of the risk, it also reduces any potential benefits of taking said risk.

Organizations should also maintain a risk register to show each risk, its score, and the treatments selected. Each risk should also be assigned an owner for continued management. Once treatment decisions are documented, you can review the risk register. Typically, this will be part of regular security committee meetings in which justifications are reevaluated, and risks are continually analyzed and prioritized.  

Leveraging Technology for Compliance Controls

Overall, compliance automation technology makes it easier to manage compliance workloads, implement and document internal controls, simplify data collection, and track audit requests. In addition, compliance automation is vital to:

• Reducing compliance costs.

• Improving governance.

• Increasing visibility into organizational processes.

• Better identify, analyze, manage, and monitor risks.

• Maintain data security and privacy.

Compliance monitoring is also easier with automation. With automated tools, organizations are more likely to detect potential risks, and then fix those risks before they can cause damage to an organization’s assets, customers, or reputation.

Step 4: Training and Culture Building

It's important to remember that a large percentage of data breaches continue to involve human error. No matter how tedious it may seem, implementing security training and continuous education around security protocols routinely provides opportunities for associates to learn security and compliance best practices. 

Consistency in maintaining these protocols is also crucial, and having the proper compliance measures in place will safeguard everyone involved. Compliance regulations should not only be something employees hear about during their required annual training but at the forefront of every organization's business strategy.

Communication Strategies for Compliance

Compliance can become complex very quickly. There's a lot of specific vocabulary and intricate steps to complete when working through regulations. To be a successful compliance leader, you'll need to remove the complexity through transparency and communicating simply and effectively. 

• Internally, compliance leaders must communicate about client issues, new technologies, developing issues, and more.

• Externally, leaders must maintain an open dialogue with clients and third-party vendors, holding all parties accountable for their defined responsibilities.

Step 5: Monitoring and Updating Compliance Risks

While there's no specific template for monitoring risks, reviewing and updating any risk management plan on a regular basis is an important step. To ensure successful monitoring, include target dates for completion. As you meet these goals, you can better decide if the controls are working as expected or need further adjustment.

Dealing with Changes in the Regulatory Environment

The one constant in compliance is change. According to a report by KPMG on the top 10ten regulatory challenges of 2023, regulatory agencies are continuing to make updates with ambitious agendas. 

Here are a few tips for staying abreast of emerging regulations and compliance trends: 

1. Follow regulatory agency websites and social media platforms.

2. Subscribe to their blogs and newsletters.

3. Build relationships with regulators.

4. Join compliance associations and attend conferences. 

5. Keep in communication with your peers. 

Continuous Improvement in Compliance Risk Management

While security was once limited to a handful of people or specific teams, it's ideal for everyone in an organization to have a security-first perspective in today's environment. 

When team members know compliance risk management best practices, they can maintain a thriving security culture. This can look like:

• Forming an information security team.

• Developing recovery plans.

• Establishing security awareness training.

• Frequently auditing against security gaps. 

Organizations who think of security holistically rather than responding to one-time security events can more adequately prepare for and manage cyber risks.

Step 6: Crisis Management in Compliance

As security breaches become more common, organizations need to prepare appropriately. Have a process for taking action, and understand an organization's contractual and regulatory requirements for reporting a breach. This includes outlining a service agreement with customers if a breach compromises data.

After an incident, identify the root cause. You might discover vulnerabilities in a system that leave organizations open to attack. For example, an employee corrupted data, a hacker compromised a system, or they experienced a distributed denial-of-service (DDoS) attack.

Conclusion

Creating a risk management program takes planning and careful thought. You'll work with organizations to identify and assess risks as well as measure those risks and adapt a plan for mitigation and continuous monitoring. 

Once an initial plan is executed, organizations will better understand their control environment, and they can take the necessary steps to continuously strengthen their compliance posture. When it comes down to it, risk management is not just a process—it’s a practice—and thinking of compliance from a holistic perspective will enable organizations to focus on what they do best.

Interested in learning how Audora can help you automate risk management for quicker results? Book a demo with us to learn more.