Control risks, prevent losses: Your compliance risk management playbook

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If there’s one area of business where the saying “no risk, no reward” doesn’t apply, it’s compliance. 

Compliance risk management isn’t just about avoiding penalties. It’s about being proactive. It’s about creating a culture of compliance. It’s about proving you’re serious about compliance, improving your reputation, and safeguarding your organization’s future.

This playbook will help you understand compliance risk management, break down its key components, and explore tools and best practices for building a resilient organization.

Table of Contents

• What is compliance risk management?
• Core components of compliance risk management 
• Why compliance risk management matters
• Let’s put compliance risk management into practice
• Compliance risk management best practices 
• Time Doctor takes compliance seriously

What is compliance risk management?

Compliance risk management is the process of identifying, assessing and managing risks associated with non-compliance with regulations, laws, internal policies and industry standards. 

It’s a cornerstone of corporate governance and essential for compliance management systems. 

The focus is on ensuring your organization operates within the boundaries of applicable regulations and standards. 

As an outcome or added bonus, compliance risk management also serves as an early warning system for compliance risks, empowering your organization to adapt compliance management strategies and controls.

Core components of compliance risk management

Identify, assess and manage compliance risks

Compliance risk management involves a systematic approach to understanding potential risks, evaluating their likelihood and impact, and implementing mitigation strategies.

Compliance is complex, layered and ever-changing. Risks can be external and internal. Non-compliance itself is a risk, as regulators and prosecutors investigating non-compliance events consider whether your organization did everything it could to minimize risks.

Given all these factors, proactively identifying and managing compliance risks starts to sound less like a burden and more like something that helps you sleep through the night.

Distinguish between compliance risk and operational risk

Although compliance risks can be operational risks (and vice versa), there are important differences. Compliance risks arise from failing to adhere to laws, regulations or mandatory policies. 

Operational risks are those that could disrupt everyday business activity.

For example:

• A health insurer storing health records on unsecured servers is a compliance risk
• A natural disaster causing physical damage to those servers is an operational risk
• Hackers breaking into the server and holding the health records for ransom is both an operational and compliance risk

Understanding the differences is essential for creating effective risk management strategies.

Compliance risk management is…

• Required for regulatory compliance: Organizations must have a structured approach to compliance risk management to meet regulatory requirements and monitor emerging risks.
• A pillar of compliance management systems: It forms a crucial component of comprehensive compliance management systems that help organizations achieve and maintain compliance.
• An essential ingredient in compliance management: Effective compliance management cannot be achieved without a robust compliance risk management framework.

Why compliance risk management matters

Effective compliance risk management helps you identify risk, prove regulatory compliance to stakeholders, and make better business decisions.

Identify compliance risks

Every organization – especially in highly regulated sectors like finance, healthcare and technology – is required to operate according to a web of rules, regulations and standards. 

While you could probably list most of your organization’s major compliance risks off the top of your head, there are more still that aren’t immediately visible. 

The process of compliance risk management is what turns up these risks. Not only once but ongoing as regulatory requirements evolve and new risks emerge.

Prevent penalties

Failing to manage compliance risks can lead to serious, often crippling repercussions extending across your operations. For example, IBM calculated that the average cost of a data breach – a common compliance weak spot – rose to $4.88 million in 2024.

Non-compliance also exposes your organization to legal, financial and reputational risks. Failing to prevent workplace harassment, mishandling personal health data, misclassifying employees as contractors – these all carry hefty fines.

Prove compliance

Regulatory bodies and auditors expect organizations to not only comply with laws but also demonstrate their efforts to stay compliant. A well-implemented compliance risk management program provides evidence of your organization’s commitment to compliance. 

By documenting your compliance efforts – including risk assessments, employee training, anti-bribery policies and monitoring activities – you build a solid defense against scrutiny.

It’s also important to note that penalties for breaches or incidents can be significantly greater if an organization is found to be non-compliant at the time. In other words, you can add “poor compliance risk management processes” to your list of compliance risks.

Stay ahead of regulatory changes

Regulations and standards are constantly evolving, especially in industries like finance and healthcare, where emerging risks require new laws. A proactive approach to compliance ensures you won’t be caught off guard by sudden changes.

The EU AI Act is a great example of this process playing out in real time. Coming into force in August 2024, in a region where AI adoption is rapidly increasing, the AI Act outlines compliance requirements for a technology that’s very much still evolving.

As fast as the process might have been (the law was only proposed in 2021), companies with a robust compliance risk management process will be ready for the changes. 

Let’s put compliance risk management into practice

As we mentioned earlier, compliance risk management is a process. It can be broadly broken down into three parts: identification, assessment and management. 

This process is ongoing and cyclical. It’s also important to work through the steps thoroughly, even if you think you have appropriate controls in place already. 

Step 1: Identifying risks and vulnerabilities

• Map your regulatory landscape: Review relevant regulations, laws, and certification standards to identify potential compliance risks.
• Consider industry-specific risks: Repeat the mapping process, shifting focus to identify unique compliance challenges and regulations that apply to your industry.
• Conduct internal audits: Review existing compliance processes, policies, controls and documentation to find your organization’s weak spots. 
• Engage key stakeholders: Involve key personnel from across the organization – such as legal, IT, HR and finance teams – who understand the operational aspects of their departments to gain a comprehensive understanding of compliance requirements.
• Assess third-party risks: Your organization can be held accountable if third-party vendors, partners or contractors fail to meet compliance standards, so it’s critical to understand your risk exposure.

There are plenty of tools and templates to streamline this process. You don’t need to reinvent the wheel. Leverage the resources available so you can focus on capturing all the possible risks rather than creating the perfect template. 

Document your findings in a risk register. Detail the source, affected processes and controls already in place, but stop short of assessing the threat level. That will come in the next step. 

Step 2: Assessing compliance risk exposure

• Evaluate likelihood: Assess the probability of each risk occurring, ranging from low (rare or unlikely) to high (frequent or probable).
• Evaluate impact: Determine the potential consequences of each risk, considering factors such as financial penalties, employee wellbeing, legal consequences and reputational damage.
• Use risk assessment matrices: Plot each risk on a grid, with the X-axis representing likelihood and the Y-axis representing impact, to visualize which risks pose the greatest threat.
• Prioritize risks: High-likelihood, high-impact risks need immediate attention, while those with a lower likelihood and impact should be monitored but might require fewer immediate resources.

Every organization has a different risk tolerance threshold. Compliance risks are typically less tolerated, but it’s still useful to define your organization’s risk appetite to establish guardrails for decision-making. For example, high-risk activities that are mission-critical might be acceptable if they’re well-managed, while other activities can be stopped if they’re deemed non-strategic and too risky.

Risk assessments also help you assign adequate resources across your compliance management systems. Resourcing – carrying out compliance management activities in good faith – is one of the three core tests of compliance management systems.

Step 3: Managing and monitoring compliance risks

• Assign ownership: Assign responsibility for managing each risk to the relevant department or person to encourage accountability and keep compliance risk management on track.
• Develop compliance processes: Work with risk ‘owners’ to clearly outline policies and procedures, including requirements, responsibilities and expectations.
• Provide compliance training: Educate employees and managers about compliance requirements, expectations, and consequences of non-compliance.
• Implement monitoring systems: Use compliance monitoring software and workforce analytics tools to track compliance activities and identify potential issues.
• Audit regularly: Schedule internal and external compliance audits to assess compliance effectiveness and update policies according to emerging risks and identified issues.
• Stay updated: Continuously monitor regulatory changes and emerging risks in your industry to adjust your compliance efforts accordingly.

Compliance isn’t static. As risks evolve, so should your risk management strategies.

Regularly review and update your policies, training programs and monitoring systems to stay aligned. By designing an adaptable compliance management system, you can ensure your organization remains well-prepared when (not if) things change.

Compliance risk management best practices

Effective compliance risk management doesn’t just prevent issues. It strengthens your organization’s ability to operate within regulatory compliance frameworks while minimizing exposure to risks. 

That translates to a more productive organization with a workforce that’s engaged, accountable and confident in managing compliance risks.

Foster a strong compliance culture

Work towards creating an environment where employees understand the importance of adhering to regulations and best practices. Encourage them to take ownership of their responsibilities. 

Clear communication from leadership about the value of compliance helps embed it into everyday operations, creating an organization-wide commitment to compliance and ethical behavior.

Empower compliance champions

Chief Compliance Officers and/or employees responsible for compliance should have a direct line to the audit committee or Board. 

They need resources to identify risks and implement compliance controls. Whether that’s time, data, personnel, tools or external advice – or a combination of all – committing to compliance means provisioning these efforts.

Invest in ongoing training

Regular, up-to-date compliance training will refresh employees’ awareness of their compliance obligations and equip them to spot risks before they escalate. 

Tailor training to different roles within the organization. Design scenarios that address specific risks each department faces, whether that’s data privacy for IT or anti-money laundering (AML) for finance.

Call the professionals

Internal teams might lack the resources or expertise needed to manage complex compliance challenges. Collaborating with third-party compliance and governance experts can provide perspective and specialized knowledge that strengthens your compliance management system.

Whether it’s legal advisory services or outsourced compliance audits, expert guidance is usually worth the investment.

Document compliance efforts

Meticulous documentation is key to proving compliance. Ensure that all risk assessments, training programs, audits, and corrective actions are documented. 

This serves as evidence during audits and regulatory reviews, and creates a rich knowledge bank for future compliance initiatives.

Learn from mistakes

Don’t shy away from compliance gaps. Analyze past incidents and near-misses to identify the root cause. 

Document the problem and solution, and use what you learn to prevent the issue from reoccurring. Whether this happens on an organizational, team or personal level depends on the cause of non-compliance.

Of course, there is a chance that ‘coming clean’ about compliance breaches will expose your organization or employees to penalties. It’s best to consult with a legal expert if you are concerned.

Leverage technology

By automating processes with compliance management software, you not only reduce human error but also free up resources for strategic tasks.

Complementary technology like workforce analytics enriches your compliance management system with insights into compliance, productivity and performance across your organization. 

Integrating these systems provides a full picture of everything from employee activity to transaction records, flagging potential issues before they become regulatory violations. 

Time Doctor takes compliance seriously

Technology can streamline compliance processes, reduce human error, and provide real-time insights that allow you to stay compliant with minimal manual intervention.

But you need the right tools. 

That means technology that enables compliance and is itself compliant. Otherwise, you’re only creating more problems.

Time Doctor is fully compliant with GDPR, HIPAA, SOC 2, and ISO/IEC 27001. We undergo regular external audits and proactively address compliance risks ahead of regulatory changes. 

So, when you integrate our industry-leading workforce analytics platform into your workflows, you gain confidence in compliance and complete visibility over your organization’s productivity.

To learn more about Time Doctor’s employee-friendly monitoring tools and flexible reporting dashboards, view a free demo or explore our features in detail.