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Most Common Compliance Risks and How to Avoid Them

Understanding Common Compliance Risks in Regulated Industries

Ensuring compliance with governmental standards, regulations, and laws is paramount for the integrity and longevity of your business. Failure to do so can result in hefty fines that could severely impact your financial health. Depending on your industry and the severity of the violation, noncompliance penalties can reach around $40,000 per infraction. These regulations are not arbitrary; they safeguard various aspects of your company, including security and ethical standards. However, navigating compliance can be complex, especially for businesses operating in highly regulated industries, where common compliance risks abound. Many corporate executives view regulatory compliance as an inevitable cost of doing business. Companies are customary to adhere to multiple sets of rules, often spanning different jurisdictions and regulatory bodies. This guide provides comprehensive insights into the compliance risks prevalent in regulated industries. Moreover, it offers practical strategies to mitigate these risks, shielding your business from substantial fines and potential reputational damage.

Most Common Compliance Risks in Highly Regulated Industries

Compliance risk refers to a business’s potential exposure to some of the following items:

  • Material loss
  • Reputation damage
  • Monetary fines
  • Legal penalties

Organizations can encounter these things for failing to abide by governmental laws. Multiple state and federal regulatory bodies oversee these rules. The most common ones include:

  • Environmental Protection Agency (EPA)
  • Occupational Safety and Health Administration (OSHA)
  • Health Insurance Portability and Accountability Act (HIPAA)

While every business faces a risk to some degree, those in highly regulated industries deal with it more often.

Noncompliance with regulatory standards

Noncompliance can result in legal penalties, fines, or even criminal charges. It happens when a company disregards applicable policies, norms, laws, or regulations concerning its operations. It can also lead to reputational damage, loss of business opportunities, and decreased trust from customers or stakeholders.

Inadequate or Outdated Policies and Procedures

An outdated or inadequate policy can leave your organization at risk. In addition, older policies might need to comply with new regulations and rules. For example, they might not address new technologies or systems. It could cause inconsistent practices. Organizational risk can result from outdated policies. For instance, old policies could not comply with current laws and rules. In addition, they might not consider new technologies or systems, which might lead to inconsistent behaviors.

Insufficient Employee Training and Awareness

Your employees need to be trained in your company’s code of conduct. They could put your organization at risk by requiring you to be well-versed in what information must be kept private. Failing to train your employees properly could result in data breaches and other issues. In addition, employees who have received insufficient training are more likely to perform poorly on the job and experience higher stress levels.

Data Privacy and Security Breaches

Your organization must comply with many regulations on storing and transmitting sensitive information. Additionally, standards surround who has access to private customer or employee information. The most common types of data that the government regulates include:

  • Student records
  • Medical history
  • Credit card information
  • Financial documents

Third-Party/Vendor Risk Management

Your business might outsource specific processes to vendors or third-party organizations. There are many risks associated with doing this, including:

  • Security
  • Reputational
  • Environmental
  • Financial

Third-party and vendor risks exist because they have access to private data. Examples of these are:

  • Intellectual property

It might be a design (industrial design), an innovation (patent/utility model), a brand name (trademark), or a literary or creative creation (copyright).

  • Protected Health Information (PHI)

A healthcare provider gathers data to identify a patient and decide on the best course of treatment, including demographic data, medical histories, test findings, physical and electronic health records, mental health issues, insurance information, and other data.

  • Personal Identifiable Information (PII)

Any information representation that makes it possible to reasonably infer, either directly or indirectly, the identification of a person to whom the information relates.

Ineffective Internal Controls and Audits

Internal audits are designed to look for potential risks. The auditor will evaluate if the organization has identified risks in the following areas:

  • Operational controls
  • Policies
  • Procedures

They’ll then determine what risks need to be addressed and remedied first. Please do this or do it well to avoid serious problems. When a control does not enable management or staff to prevent, detect, and remedy misstatements promptly, there is a failure in internal control.

Failure to Identify and Manage Emerging Risks

Stating that you’re too busy or forgot to look for potential risks won’t save you from getting fined. Not ensuring that your business complies with all regulations and laws can cause various issues, such as:

  • Lawsuits
  • Theft
  • Catastrophic losses
  • Lack of transparency
  • Failure to thrive

Strategies for Avoiding Common Compliance Risks

You can avoid being found non-compliant, primarily if you work in one of the many regulated industries. Let’s discuss some of the most common tactics.

Developing a Strong Compliance Program

Having a compliance program in place shows that your company knows the regulations it must abide by. It also illustrates that you’re taking measures to reduce risk and comply with the laws. A robust compliance program can help you defend your company. A compliance program may assist you in promptly identifying and rectifying illegal behavior before it harms your business, reputation, and bottom line, just like an early-warning system might.

Ensuring Continuous Monitoring and Updating of Policies and Procedures

Rules and regulations are continually changing. In addition to understanding what’s expected of your organization, you must constantly monitor the standards for changes. You can tweak your compliance program as needed. Thanks to continuous monitoring, management may continuously assess business processes for adherence to and departures from their expected levels of performance and effectiveness. In addition, internal audits can constantly collect data that supports auditing operations from methods thanks to continuous auditing.

Implementing Robust Employee Training Programs

One of the most important things to remember when creating an employee training program is to show real-world applications. Your compliance training program will only be meaningful to your workers if they know how to apply it. Here are some tips for creating a solid program:

  • Evaluate your training needs.
  • Get training materials.
  • Plan what areas you need to tackle.
  • Gather data from before and after the training to measure the impact.

Strengthening Data Protection and Security Measures

Around 422 million people were impacted by a data compromise last year. Data protection is critical for your organization. Here are a few ways you can give your security and data safety measures a boost:

  • Improve your organization’s passwords.
  • Encrypt all your data.
  • Use software that understands your industry’s regulations.

Establishing Effective Third-Party Risk Management Processes

As we mentioned earlier, many businesses deal with third parties. Stay on top of your compliance risks with them. Some of the ways you can do so include:

  • Conduct screening and onboarding of all vendors.
  • Prioritize IT vendor risks.
  • Develop a comprehensive workflow.

Conducting Regular Internal Audits and Assessments

Do you want to discover problems before they wreak havoc on your organization? Internal assessments and audits do just that. Improve your processes while ensuring you stay in compliance. To offer expert assurance that a company’s internal control, governance, and risk management systems are working correctly. 

Leveraging Technology to Identify and Manage Risks

Use technology to your advantage to manage your compliance risks. Much of the work doesn’t need to be done using manual labor.For example, Xybion’s Compliance Risk Predictor is designed to automate the process. The benefits of our platform include:

  • Streamlining compliance management in one location
  • Enhancing risk identification with predictive analytics
  • Simplifying regulatory tracking

Effectively Avoid Common Compliance Risks with Compliance Risk Predictor

Navigating the vast landscape of compliance risks might seem daunting. Each poses a unique challenge for businesses, ranging from data security vulnerabilities to inadequate employee training. Yet, establishing and adhering to a robust compliance program can safeguard your organization from debilitating mishaps. At this crossroads, the solution we offer is the Compliance Risk Predictor. Our trailblazing solution revolutionizes how you perceive, manage, and mitigate compliance risks. Leveraging cutting-edge AI technology, the Compliance Risk Predictor consistently monitors and swiftly addresses evolving regulatory requirements, freeing you from constant worry.

We at Xybion are committed to empowering your organization to thrive amidst ever-changing compliance norms. Book a demo of our Compliance Risk Predictor and experience firsthand how Xybion’s solution can revolutionize your approach to compliance risk management by proactively observing and responding to regulatory requirements through AI-driven methodologies. Harness the power to prioritize actions, create effective remediation strategies, and automate continual monitoring with our Compliance Risk Predictor. This pioneering tool is the industry’s exclusive quantitative solution for measuring, reporting, and managing risk and compliance. With Compliance Risk Predictor, you gain the capacity to minimize risks, reduce noncompliance costs, and offer optimal protection to your business, employees, and customers. Allow Xybion to be your steadfast partner in navigating compliance intricacies with our unique solution that blends advanced solutions and expertise.


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