Compliance Risk Management
Compliance risk management involves assessing and setting limitations to the risks involved in conducting business. Without any type of systems to manage risk, an institution is a helpless target for serious loss. There are many categories of risks that must be addressed. Compliance risk management categories include, but are not limited to, knowing your customers, comprehensive risk assessment, counter-party risk, transaction reporting, and program evaluation.
Know Your Customers and Reduce Counter-Party Risk
Knowing your customers and having tools in place that will effectively verify a customer’s identity and authorization to access information and accounts will significantly improve your risk management in this area. According to the Association of Certified Fraud Examiners, 2008 ACFE Report to the Nation on Occupational Fraud and Abuse, July 2008, "U.S. organizations lose an estimated 7 percent of annual revenues to fraud." This makes balancing personal customer relations with the management of risk a must.
Counter-party risk is the danger that the other party in an agreement will not fulfill his or her obligations in a contract. The default of another party can cause hefty financial losses for organizations both short-term and long-term. One way counter-party risk can be significantly reduced by having a third party organization that maintains very good credit act as a mediator between the two parties. However, you must determine the best methods for managing risk in order to minimize this danger for your organization.
Transaction Reporting as Part of Compliance Risk Management
Federal laws require that currency transactions handled by U.S. financial institutions that exceed the $10,000 cap have a formal report filed. Many institutions are modifying the standards to boost compliance risk management themselves. Determining which transactions require further documentation can be a gray area and boundaries must be set in order to enforce standards for the management of risk.
Compliance Risk Management - Comprehensive Risk Assessment and Program Evaluation
Comprehensive risk assessment involves much analysis and attention to detail to adequately incorporate it into your compliance risk management protocol. There are great tools available that will manage the comprehensive risk assessment to assist in determining how great of a risk a customer’s account poses. This addresses all categories of compliance risk management and evaluates which areas are of greatest concern and prioritizes risks.
Regardless of how well planned your compliance risk management strategy and policy is, you must regularly evaluate your current program. It is difficult to objectively evaluate a program from within an organization. This demands that an outside unbiased organization review and analyze your policies and programs.
This allows you to assess new technologies that may be available, newly discovered risks, and any holes that may exist in your program. Using this information to modify and tweak your program to effectively improve compliance risk management is the ultimate goal of a program evaluation. The constantly changing technologies and ever present threats to the security of every organization require the services and expertise of those that research and educate themselves every day in terms of managing risk.
For more information about compliance risk management, please fill in the contact form on this page and someone will be in contact with you regarding your complimentary consultation.
