Practical tips for implementation
What Are Compliance Risks Anyway?
Compliance is the effort to establish behavior that conforms to the rules. This includes “classic” compliance with applicable national and international laws and regulations, but also adherence to ethical and moral principles, set out for example in the company’s Code of Conduct. A compliance risk exists when an organization runs the risk of violating rules from these two areas.
Exactly what these risks are varies from company to company. And, should a risk become a reality, the potential consequences can also vary greatly. Sanctions, claims for damages, fines or imprisonment are conceivable, but so is massive damage to the company’s reputation – examples of this can be seen frequently in recent economic history.
Areas Where Compliance Risks Are Particularly High
In principle, compliance risks can occur in the context of a large number of legal fields, regulations or ethical and moral values. However, there are some legal areas that are often associated with particularly high risks of damage:
- Anti-corruption laws
- Cartel and competition law
- Money laundering acts
- Bookkeeping and accounting regulations
- Data protection law
- Export control
- Labor law
- Environmental law
Evaluating possible risks within these areas in your own company can be a starting point for compliance risk analysis.
Ultimately, compliance risk analysis is primarily a tool for increasing the effectiveness of the compliance program. Without knowing the most relevant risks and possible negative consequences, it is difficult to determine whether compliance resources are being utilized properly – or even whether more resources are needed for the most relevant risks. Thus, risk analysis is also an important way of proving the effective and efficient design of the compliance program – not only to auditors and law enforcement officers, but also to internal stakeholders.
Ongoing Monitoring of Compliance Risks Necessary
But the work is not yet finished. At this point the compliance risk analysis becomes compliance risk management. Compliance risks should be continuously monitored and re-evaluated as necessary, because external and internal factors are changing constantly. For example, the political situation in a country changes and, as a result, the risk of corruption alters significantly (external factor) or the company moves into a new business area that may be subject to compliance risks (internal factor).
Even independently of such events, it is advisable to review the risks recorded at regular intervals. Is the probability of occurrence and damage level still realistic? Have the defined measures been implemented and are they having the desired effect?
Regularly reviewing compliance risks not only helps to ensure that companies constantly question the effectiveness of their compliance program and better identify potential new risks – it is also indispensable for demonstrating a robust compliance system to external auditors – and, in an emergency, to law enforcement officers.