Top Types of Compliance Risk and How To Mitigate Them

As those working in highly regulated industries are well aware, compliance risk is a measurement of your organization’s exposure to potential non-compliance issues, including regulatory risk. It also considers possible penalties ranging from reputational damage to significant legal fees. However, nuances across these industries mean that there’s no single definition of “compliance risk” — which, in turn, means there isn’t a singular or standardized way to structure internal policies, governance workflows, and compliance management processes.

As such, reviewing top compliance challenges and the solutions that can aid risk management can be a useful exercise in optimizing operations. 

Types of compliance risk

There are many ways to categorize compliance risk. For example, some may be specific to industry-wide regulatory requirements or consumer compliance, making them part of the “inherent risk” category; others may result from particular offerings, decisions, or processes. Here are a few typical examples of compliance risk.

Industry-specific regulations

When it comes to risk analysis,  industry regulation should be at the top of your list. Rules from these bodies guide various types of conduct in your organization regardless of your offerings, for example FINRA, FTC, FCA and the PRA.

Risk mitigation tips: Stay on top of regulatory requirements and other industry regulations to ensure your internal policies are always up-to-date and employees are educated on changes.

Privacy breaches

Data protection regulations such as the EU’s General Data Protection Regulation (GDPR) establish responsibilities in defending customer privacy. Noncompliance can result in significant ramifications; in the example of the GDPR, organizations can receive a fine of up to 4% of their total annual worldwide turnover.

Risk mitigation tips: Understand data protection laws in your organization’s home country and wherever you do business, then prioritize individual areas of focus. Research by the International Association of Privacy Professionals (IAPP) indicates that most industries consider these top privacy priorities:

• Data breaches.
• Third-party data processing.
• Privacy design implementation.
• Personal data management.
• Privacy training for employees.

Misleading language

Misleading language is just one type of compliance risk in marketing and advertising. While perhaps unintentional, this kind of wording can harm consumers and violate regulations such as the U.S. Federal Trade Regulation’s truth-in-advertising laws. You’ll also need to consider other potential risks in your language — for example, making unsubstantiated claims, using testimonials inappropriately, or creating legally binding contractual terms.

Risk mitigation tips: Managing compliance risk should be built into both your Marketing and Compliance/Legal workflows, helping bridge the gap between these two teams.

Takeaways

Compliance risks can be diverse and difficult to identify, especially because they tend to overlap; for example, privacy breaches can lead to HIPPA or Data Protection Act violations. Although compliance risk assessment is a vital first step, mitigation efforts can take a variety of forms — particularly if your organization leverages the proper processes and technology solutions.

Breaking down the compliance risk management process

It’s crucial to understand the difference between risk management and compliance management — and, perhaps most importantly, where they overlap:

• Compliance management focuses on regulatory compliance and ensures you are fulfilling relevant responsibilities.
• Risk management is more about the behaviors that could lead to risk and non-compliance.
• Both ensure your (highly regulated) organization avoids potential risk and the legal, financial, and reputational ramifications of non-compliance.

Oftentimes, compliance and risk management come together to form “compliance risk management” — an umbrella term referring to a network of interconnected processes and tasks. Examples include:

• Compliance risk assessment, including the identification and prioritization of each potential risk. 
• Compliance frameworks, establishing specific processes for each compliance effort.
• Appropriate delegation, determining which regulatory compliance or risk management responsibilities rest with which department, team, or individual (such as a Chief Compliance Officer).

The problem is that all of these moving parts make compliance risk management difficult to define. There are also a variety of inherent challenges along the way — particularly interdepartmental communication between teams with differing priorities (such as Marketing and Legal/Compliance).

Best practices for compliance risk management

To streamline compliance risk management, it’s crucial to split your focus between two areas:

• The risks themselves.
• The processes established to manage those risks.

That’s why best practices for any compliance program often have elements of both. Here are a few examples:

• Getting all stakeholders on the same page — especially Legal and Marketing.
• Providing a clear workflow for ensuring all assets, including marketing content, are compliant from creation to approval.
• Streamlining asset approval processes.
• Leveraging intelligent technology e.g artificial intelligence (AI) and machine learning (ML) to customize compliance processes for different needs.
• Ensuring accuracy and consistency in risk detection.
• Centralizing and regularly reviewing/updating rules and regulations for the business.
• Using a technology solution such as a marketing compliance platform.

Although these best practices can be adapted for just about any compliance function, they’re a particularly good fit for ensuring compliance in the advertising, marketing, and promotional content space. No matter your industry, you can unite teams, specific regulations, and creation/approval processes in one place — and that’s where a solution like Red Marker can assist. 

Minimizing compliance risk with Red Marker

All types of compliance risks are important, from industry-specific regulations and privacy breaches to misleading or unsubstantiated language. However, communications with your clients are where many of these risks live — which is why it’s crucial to have effective marketing compliance technology to help alleviate these challenges.

Fortunately, Red Marker is built with many of these risks in mind. Our AI-powered platform can address a range of marketing compliance challenges, using your industry specific regulations to analyze marketing content and streamline approval processes. It doesn’t just bridge the gap between Legal/Compliance and Marketing teams; it also helps connect workflows with the compliance regulations that are intended to guide them. 

Want to learn more about Red Marker and why the optimal choice for identifying compliance risk in your marketing, advertising, and promotional material? Book a consultation today to discuss your current processes and learn how we can improve them.