Managing compliance is a risk, it is a sub-set of operational risk.
From Wikipedia: Risk management is the identification, assessment, and prioritization of risk effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. (Wikipedia:)
Compliance means conforming to a rule, such as a specification, policy, standard or law.
Compliance with statutes
Compliance with regulations
Compliance with contracts (customer, vendor, supplier (licenses))
Strategic Value & Operational Mechanism
Operational Mechanism
-Compliance risk at the operational level is a mostly unrewarded risk, something you have to do to keep the regulator of your back to ensure your business maintains its license to operate. Most of the time you are avoiding penalties and fines when it comes to being compliant, in this regard, compliance is “must-have” to keep your business light on.
Businesses are focused on risk management and corporate governance as a means of setting guidelines. Both are critical business functions whose responsibility resides with the board and senior executive teams to the point of liability and individual risk.
Intertwined Relationship Between Compliance and Risk
As part of the effort to run a successful business, we have to manage risks to business operations with an eye on strategic planning. Requirements to ensure legal compliance are another component of the company’s risks. The challenge is ensuring that the people authorized to make decisions on behalf of the company are able to view the organization and the risks to the organization holistically.
There needs to be a balance and thoughtful approach to manage the risks that could interrupt or negatively impact business, which includes compliance risk. That said, the overarching risk management program should consider compliance risk as part of the enterprise view of risks. Also, utilize the Risk Management processes at its core and running through all activities whether by the compliance function or the businesses.
The debate here is: should compliance and risk be treated as sisters to live at the same roof or as separated cousins to visit each other once a while?
The point of Convergence:
The point of Convergence:
Managing compliance is a risk, it is a sub-set of operational risk. It is such a large area of risk that most companies have a group dedicated to it, which may create the impression that it is somehow a separate discipline, but it isn't. It's just one risk area that is large enough that it justifies dedicated staff.
- The Counter-point:
For compliance & risk management professionals, one should be aware that compliance is not just about the letter of the law/ regulation, but also very much about the spirit of the law/regulation. Unwritten rules, based on common decency, mutual respect and integrity should play an equally important role, next to the ‘hard’ compliance.
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