triple r: recognizing regulatory risk is everybody’s business!
by Kaila Mayers It is not solely up to the risk management team to identify, assess, monitor, manage and treat regulatory risk; this responsibility is borne by the whole business. The failure to recognize this may lead to noncompliance with laws and regulations, leading to fines and worse outcomes. But do we fully understand what constitutes “regulatory risk” in this changing regulatory landscape, especially as regulators worldwide grasp the changes caused by the COVID-19 pandemic?
what is regulatory risk and who is involved Regulatory risk is the risk of changes in laws and regulations that will have an impact on a business or sector. New laws and regulations are frequent occurrences, as various levels of government and regulatory bodies deal with crises while balancing fairness, competition, and oversight. How a company reacts to newly applied rules will dictate how regulatory risk is managed and treated, and ultimately impact on performance. To be a proactive risk management professional, continuous monitoring of the regulatory environment as it relates to the company’s business is a must. Regulators consult with registrants in their respective industry once laws and regulations are drafted, and this gives an early warning signal to businesses of changes to come, together with a chance to participate in the development of new rules. Once laws and regulations are passed, it is up to the company to determine potential non-compliance, the timeframe to comply, the impact if not met, and its risk treatment. Additionally, compliance and risk management functions should be clearly separated within the second line of defense. The compliance team assesses and monitors compliance and non-compliance to legislation. Risk management, on the other hand, identifies and measures the potential material noncompliance risk of legislation by reviewing its impact, confirms there are appropriate risk treatments in place (within the company’s risk appetite), and accurately reports material risk-related information to senior management and the board of directors.
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Intelligent Risk - February 2022
