The Emerging Role of Compliance Risk Managers

Posted by Jeff Pelliccio on Oct 11, 2017 9:00:00 AM

In ICS insights

Traditional risk management mostly focused upon finance and insurance issues. For instance, financial companies may need to need to manage risks associated with of poor returns or loan defaults. Transportation companies might want to concentrate on reducing the risk of accidents and making sure their fleet has proper insurance. Of course, many kinds of business rely on financial and hazard risk management; however, compliance risk management has also become an important part of keeping companies from accidentally suffering losses these days.

The Importance of Risk Management for Compliance

The American Banker's Association recently reported that compliance risk management was one of three priorities underlined by the Office of the Comptroller. The OCC explained this focus because new waves of regulation have created a challenge for many of the institutions that they work with, particularly small to mid-sized banks. This concern largely rose because of new and modified regulations for consumer loans and the trouble that smaller banks had while staying in compliance.

If these banks don't amend their policies to keep up with new rules, the government may find them out of compliance and be more than ready to impose fines or even take more severe legal action. While the government regulates financial companies very strictly, other industries need to ensure that they keep up with legislation too.

According to a study from George Mason University, other examples of highly regulated industries in the U.S. include healthcare, energy, and transportation. Of course, these are the two main risks of falling out of compliance:

  • The government might impose monetary fines or even sanctions. In some cases, they may take companies to court.
  • When news of government action hits the papers or the internet, the business may suffer even more because of bad press.

Some U.S. businesses may only need to concern themselves with local or national laws. However, many companies also work overseas. These businesses need to make sure they can understand rules that differ from domestic laws.

Who Does Compliance Risk Management in Companies?

Smaller or less risky businesses may shuffle the critical task of staying in legal compliance to whoever handles typical risk management duties. These tasks may even fall upon people in the accounting department who have plenty of other, unrelated duties. Some companies rely heavily upon their third-party insurers to help them manage risks, so they leave this matter in the hands of a third-party company that may not stay informed about their industry.

The problem is that compliance risk management differs from other risk management specialties. Companies that view themselves vulnerable to compliance issues are beginning to demand the services of compliance specialists. In some cases, people with this specialty may simply get recruited or trained to work within the risk management department. They may simply have the title of compliance risk manager. At the same time, the demand for compliance officers has increased enough to make this an in-demand, executive profession. A person with the title of a compliance officer has a position in the C-suite and typically works as part of the CEO's staff.

Besides overseeing the way the company follows government rules, the head of compliance may also be involved in corporate governance. He or she will also work to ensure that employees adhere to company policies. This means that the job usually requires cooperation between multiple departments. Besides merely keeping up with rules, this professional needs to oversee required training, modification and enforcement of corporate policies, and reporting to the boardroom.

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