2. How to assess compliance risk
Assessing compliance risk is measuring the likelihood of breaking the rules, as well as the chances that your suppliers might. A compliance risk assessment is not merely “checking the boxes,” to confirm that your enterprise adheres to existing and new regulations. Performing an assessment of compliance risk means you also evaluate which areas lack sufficient controls. Through a compliance risk assessment, you identify threats to your company or its reputation that arise through non-compliance. This is particularly true in heavily regulated industries such as aerospace and defense, automotive, banking and finance, chemicals, healthcare, pharmaceuticals, where more rules also mean more risk along the supply chain.
Compliance regulations generally cover six main categories. These are:
- Processes (keeping to the rules of business and commerce, such as laws governing accounting, trade, transactions)
- Workplace health and safety (upholding labor laws, avoiding modern slavery, unfair or dangerous conditions)
- Quality (avoiding conflict materials and hazardous substances, enforcing food and drug safety, technical requirements, such as whether products are fireproof)
- Social responsibility (ensuring security for workers or data)
- Corrupt practices (preventing bribery, corruption, unfair competition)
- Environment (avoiding damage to air, water, land)
So how can compliance be a risk to your business? In the business world, particularly in international trade and finance, new rules are frequently added, and existing ones amended. What makes the situation even more complex is that companies may need to ensure compliance in their supply base, too. And despite the complexity, businesses must always play by the rules, or face consequences.
To understand whether your supply base is adhering to the ever-growing volume of regulatory requirements, you need real-time data. The AI-based tools of The riskmethods Solution™ make compliance-risk monitoring and reporting faster and simpler than through traditional methods.