Risk and Compliance Management: Differences, Similarities, and How to Integrate Them

We often hear risk and compliance management bundled together as a single discipline. While it’s true that risk management and compliance management overlap in many ways and complement each other — dropping the ball on compliance can expose your organization to more risk, or become a risk in and of itself — they’re actually very different in practice.

In this article, we’ll explore the similarities and differences between risk and compliance management, and explain how you can integrate them to drive positive business outcomes and strategic advantage.

Let’s start by taking a look at the differences between risk management and compliance management.

What is risk management?

Risk management is the process of identifying all of the various risks your organization faces and finding ways to either control and mitigate any potential adverse effects they could have on your organization or leverage and exploit them to generate strategic advantage.

Risk management looks a little different at every organization, but it typically follows this general framework:

Identify your risks: Paint a complete picture of all of the risks your organization faces. This can be done through data analysis, stakeholder interviews, review of external media and global trends, and other methods. Use this research to build a list of all your organization risks, known as a risk register.

Assess your risks: For each risk in your risk register, measure the potential impact it could have on your business if it were to turn into a risk event. You can use qualitative methods, quantitative methods, or both to accomplish this.

Prioritize your risks: Rank your risks in order of their potential business impact.

Mitigate or exploit your risks: Using your ranked list, begin exploring ways to either mitigate your risks or, if appropriate, exploit them to drive growth.

Monitor the results: Keep a continuous eye on how your mitigation efforts or risk exploitation strategies are performing, and adjust as needed.

Rinse and repeat: Risk management is a marathon, not a sprint. Repeat this process on a regular, ongoing basis.

Common types of organization and enterprise risks

Here are some of the most common types of enterprise risks that organizations face:

Cybersecurity risk: Cybersecurity risks are top of mind for every organization these days as the frequency and severity of cyber attacks increases. They can result in data breaches, downtime, or other disruptions to normal operations.

Operational risk: Operational risks stem from failures in your organization’s internal processes, policies, or systems. They include human error, malicious insider activity, natural disasters that take facilities offline, and other internal issues.

Financial risk: These risks originate with your organization’s financial position and investments. Financial risk is the risk that you could lose money — sometimes substantial sums — due to bad investment decisions or strategic mistakes. They include credit risk, liquidity risk, and market risk.

Legal risk: This is the risk that your organization could run afoul of legal or contractual requirements and end up on the receiving end of a lawsuit or other legal action.

Reputational risk: When an organization finds itself the focus of some unflattering headlines or in the middle of sociopolitical firestorm, it’s fallen victim to reputational risk. These are risks that tarnish your company’s public and brand image, leading to lost revenue, market share, and other negative outcomes.

Compliance risk: This is the risk that your organization will fall out of compliance with regulatory requirements, leading to fines and other penalties.

What is compliance management?

The last of those risks, compliance risk, is the one we’ll concern ourselves with for the rest of this article. Compliance management is the process of ensuring your organization is always adhering to any regulatory or legal requirements and industry standards that it is required to comply with. 

Compliance management programs are critical for avoiding the legal and reputational consequences of non-compliance. These programs generally follow a procedure similar to the risk management process detailed above, but focus specifically on compliance risks and the controls your organization has or needs to put in place to mitigate them.

Assess your compliance risk landscape: Take stock of all of the regulations, laws, and compliance requirements your organization must operate under, then map any potential risks from your risk register that could compromise compliance. Use risk quantification methods to determine the financial impact of these risks.

Prioritize your compliance risks: Once you have your list of compliance risks and their corresponding potential impacts in hand, rank them according to severity so that you know which compliance risks could lead to the biggest problems.

Mitigate compliance risk: Starting with your most pressing compliance risks, determine which policies, procedures, and controls need to be implemented or updated to ensure your compliance doesn’t lapse. This could take the form of increased employee training so that everyone is aware of your regulatory obligations and how to maintain compliance with them, implementing new cybersecurity controls to prevent data breaches, carrying out regular internal audits, or developing new internal policies.

Monitor the results: Continuously monitor, test, and re-evaluate your compliance risk management efforts, taking into account changes to regulatory requirements or new regulations that will affect your operations.

Types of compliance risk

Compliance risk comes in many forms, and the ones your organization faces will depend on the industry you operate in and the types of data it handles. Here are some common types of compliance risk.

Corruption, fraud, and illegal activity

Many countries have laws designed to prevent corruption, fraud, money laundering, bribery, and theft. Good examples of these types of regulations are the U.S. Foreign Corrupt Practices Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Sarbanes-Oxley (SOX), and the Anti-Money Laundering Regulation (AML). 

Data and privacy breaches

Cyber attacks and other malicious activity very often targets the sensitive data that organizations use to fuel their products and operations, and all it takes to expose it is a misconfiguration or simple human error.

This data can be of a deeply personal nature, and there are a myriad of laws in place around the world designed to hold organizations accountable for the loss of any of it, including the General Data Privacy Regulation (GDPR) and California Consumer Privacy Act (CCPA). 

Some industries have specific privacy laws, including the Health Insurance Portability and Accountability Act (HIPAA) for health care organizations and the Federal Education Rights and Privacy Act (FERPA) for educational institutions.

Environmental protection

Any organization that produces material goods likely deals with waste products and the potential for pollution at some point. Even if your organization doesn’t directly manufacture anything, there’s a good chance that it’s being done at some point in your supply chain. 

Most countries have laws and regulations designed to prevent pollution and environmental degradation. In the United States, the Environmental Protection Agency enforces most of these regulations, including the Clean Air and Clean Water Acts.

Workplace health and safety

Workplace health and safety regulations are designed to ensure worker safety and prevent accidents, injuries, and deaths on the job. In the United States, the Occupational Safety and Health Administration enforces these laws.

Labor laws

Related to workplace health and safety, many countries have passed laws to protect workers from exploitation, unsafe working conditions, unfair pay, and discrimination.

Regulatory changes

Regulations are constantly changing, and new ones are coming into force all the time. Failing to stay abreast of all of these changes can put your organization at risk of non-compliance, even if you weren’t aware of the new requirements.

What are the consequences of failing to manage compliance risk?

Falling out of compliance with any regulatory requirement or framework carries significant consequences for any business. These include:

Legal: Failing to comply with a regulation or law can land your organization in legal trouble, which could lead to fines, penalties, and even prison time.

Reputational: High-profile incidents stemming from regulatory non-compliance can reflect poorly on your organization, leading to loss of consumer or client trust and other negative outcomes. This damage can take years to repair.

Financial: Non-compliance can hurt your organizations revenue, both due to the legal and reputational damage discussed above and loss of investor confidence or revenue.

How do risk and compliance management differ?

Risk management and compliance management both involve preventing risks from causing problems for your business. The difference between the two is a matter of scope and focus: 

Risk management is the overall practice of managing, controlling, or leveraging risk to achieve your organizational goals or prevent adverse outcomes from derailing them. 

Compliance management is a subset of risk management focused specifically on the risks that non-compliance with regulatory requirements or standards frameworks introduce to your business.

Best practices for compliance risk management 

Have a proven, repeatable process in place

A sure-fire way to run afoul of regulatory requirements and invite non-compliance to your front door is to approach managing compliance risk in an ad-hoc way. Having a process like the one detailed above allows you to apply a uniform, proven, and repeatable method for managing compliance risk, no matter where new regulations come from or what they look like.

Stay in the know about regulatory changes and requirements

Just like it’s crucial to have a reliable process for managing compliance risk, it’s important to have a system in place for ensuring you know about every change to any regulations that affect your organization — and there are a lot of them: In 2021, an average of 2.4 regulatory changes happened each day, according to Harvard Business Review. You’ll also want to use this system to keep tabs on any new regulations that go into effect, such as the U.S. Securities and Exchange Commission’s recent cybersecurity rules.

Staying on top of changes to the regulatory landscape will make it much less likely that you’ll miss one and suffer the consequences.

Improve your training programs

At its core, compliance risk management is about making sure the actions of your frontline employees conform to the regulatory requirements your organization is required to follow. The best way to ensure everyone is aware of your compliance risks and how to maintain compliance is to implement robust training programs.

The focus of these programs and the employees who will need to take part in them will differ based on role and department, but it’s critical to develop them and conduct them on a regular basis.

Test and audit

Always be stress testing and examining your compliance controls for effectiveness. Regulatory landscapes are constantly changing, and you may need to adjust controls or change to different methods entirely depending on how things shake out.

Leverage the right technology

Managing compliance through traditional methods like spreadsheets is a recipe for missing deadlines and losing sight of important requirements. Use modern governance, risk management, and compliance software like LogicGate Risk CloudⓇ to centralize all of your compliance risk data and automate management processes.

Common challenges in compliance management

Compliance management is an important task for any organization to carry out, but it’s not an easy one. There are plenty of ways that your compliance management efforts can go off the tracks despite your best efforts. Here are a few:

Third-party compliance risks

If the third parties and vendors you partner with aren’t doing their part to ensure they’re in compliance with the regulations or frameworks that you both need to follow, any violations on their end could blow back to impact your organization.

The best way to prevent non-compliance at a third party from affecting your business is to build an effective process assessing your third-party risk exposure and vetting your vendors.

Remote work

It used to be the case that work happened in a select few locations — a central office, a production floor, or another facility. Now, in the wake of the global Covid-19 pandemic, more people are working remotely than ever before, and that trend seems to be holding over the long term. This makes monitoring for compliance a bit more difficult, so you’ll need to put systems and processes in place that can account for this by centralizing your data and allowing you to manage compliance from anywhere, at any scale.

Manual auditing and data collection efforts

The more time teams need to spend tracking down the data they need to monitor their compliance risks or conduct compliance audits, the less time they have to spend staying up to speed on changing regulations or improving their controls and mitigation strategies.

Automating these processes wherever possible will help you free up your team’s time to focus on more strategic work that can drive your business forward.

How to integrate risk and compliance management

Compliance management may have a specific focus, but it can’t be done in a vacuum. Non-compliance is a risk in itself, but letting it take root can also lead to a cascade of other risks entering your organization, from cyber risk to physical security risk to environmental risks.

That’s why it’s important to take a holistic approach to managing risk and compliance throughout your organization. Baking compliance into all of your other risk processes and using modern GRC technology like LogicGate Risk Cloud to obtain a complete view of your entire regulatory and compliance landscape is the key to ensuring you never miss another compliance deadline or regulatory change again.

Schedule a demo today to discover how Risk Cloud can help you stay on top of your organization’s compliance risks.