Learning Center August 25, 2021

Compliance vs Risk Management: What You Need to Know

According to a study conducted by Ropes & Gray, 57% of senior-level executives rate “risk and compliance” as the top two categories they feel the least prepared to address.

There are a lot of misconceptions about compliance and risk management. Both help to prevent security threats to the organization’s legal structure and physical assets. And often, when people hear the terms compliance and risk management, they assume the two are the same. While there is an overlap between these two terms, it’s important to understand how compliance and risk management differ in order to ensure each is handled correctly.

In doing so, leadership teams can use each strategy to their full advantage and make a real impact on their organization’s cybersecurity posture. Let’s explore the functions, definitions, and differences between compliance and risk management.

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What is compliance?

Compliance refers to the act of conforming to a set of standards, regulations, or requirements. In general, compliance in business involves two crucial components:

  • Regulatory compliance: the steps an organization takes to comply with applicable external laws, regulations, and guidelines.
  • Corporate compliance: the actions and security programs an organization implements to ensure compliance with internal policies and procedures, in addition to external regulations.

Both regulatory and corporate compliance is essential to ensure organizations adhere to regulatory requirements and avoid potential federal fines, legal actions, or shutdowns.

What is risk management?

Risk management is the process of identifying, assessing, and managing potential threats that could damage the organization’s reputation and earnings. These risks stem from a variety of sources such as legal liabilities, data-related issues, financial uncertainty, and much more. Additionally, risk management involves proposing plans to increase awareness around potential threats and how to avoid them. Essentially, risk management enables organizations to prepare for the unexpected by minimizing issues before they occur.

The difference between compliance and risk management

Undoubtedly, compliance and risk management are closely aligned. Compliance, in association with established industry regulations, ensures organizations stay protected from unique risks. Whereas risk management helps protect organizations from risks that could lead to non-compliance – which is a risk in itself. Let’s take a closer look at how compliance and risk management roles differ within an organization.

Prescribed vs. predictive

The prescriptive nature of compliance requires organizations to adhere to rules and regulations. Meanwhile, the predictive nature of risk management forecasts the impact risks will have on organizations, encouraging organizations to take immediate action and implement new processes that minimize risks.

Tactical vs. strategic

Non-compliance can lead to expensive fines, penalties, and reputational damage. To ensure your organization is adhering to rules and regulations, compliance requires a “box-checking” approach. Contrarily, risk management is more strategic because it requires making and carrying out decisions that minimize cybersecurity risks in an organization.

Risk aversion vs. value creation

Without a long-lens approach to risk management, complying with industry regulations and guidelines rarely converts into value-generating company propositions. Typically, compliance stops once there is verification that a rule has been followed. Compliance also gets a bad rap because it sucks up valuable time, effort, and resources from employees that would much rather work on projects that bring immediate value to the business. However, a good risk management plan can continuously track changes in the regulatory environment to ensure the organization’s compliance is up to date, transforming the downsides associated with compliance into a value proposition.

Can one exist without the other?

Your organization can’t have risk management without also having compliance. Unwillingness or an inability to comply with regulations can result in reputational damage, lawsuits, financial losses, or enforcement actions, making it crucial to incorporate into your business. The average cost for organizations that experience non-compliance related problems is nearly $9.4 million. A good risk management plan would allocate resources to compliance plans and procedures and ensure that compliance and general risks are continuously managed. Ultimately, organizations can avoid the headaches of dealing with non-compliance problems by simply investing in a robust risk management plan.

How SecurityScorecard can help

Compliance and risk management need to work in tandem to ensure that organizations are adhering to the necessary regulations and preparing for action in the case of a cyberattack. With SecurityScorecard’s Security Ratings, you can continuously track adherence to regulations and detect potential gaps within current security mandates. Our compliance mapping module detects issues that concern the checkpoints of security standards that apply to your organization. Additionally, Security Ratings can give you an outside-in view of the security posture of your IT infrastructure and display the most critical risks for your organization. In doing so, you can prioritize remediation immediately.