What is Compliance Risk?

Compliance Risk Definition

Compliance regulations aim to protect consumers and their private data, including patient data, financial data, and personally identifiable information (PII). Organizations adhere to compliance regulations on storing and accessing data and safeguarding private data to avoid hefty fines for violations. These regulations place responsibility on the organization to ensure that best practices are used when customers entrust them with their PII. Compliance risks lie in how organizations deploy security tools and carry out best practices to preserve data integrity and privacy.

What is Compliance Risk?

As an organization builds its infrastructure, coding rules, database storage strategies, and application procedures, it should protect any stored data in the best ways possible. Smaller organizations that are not familiar with best practices for data integrity and protection need help with effective safeguarding procedures. Compliance helps lay out a roadmap for organizations to determine how they will store and safeguard data. It also helps determine authorization rules and defines who should have access to data.

Risk factors are used to quantify threats and bad actors that target valuable data. Compliance risks are the factors that affect a company’s current compliance status. Risk is often quantified numerically and monetarily to determine potential loss should a threat actor penetrate infrastructure defenses and obtain private data. If the organization is non-compliant, they could face hefty fines. To avoid these fines, organizations assess risk and apply security controls based on regulatory standards such as those laid out by HIPAA, PCI-DSS, SOX, GDPR, and several others.

Common Types of Compliance Risk

Risk is managed by identifying weak links in your data protection. Compliance risk can stem from human error, security misconfigurations, or an oversight in application logic. Once risk is identified, administrators can manage it using safeguarding tools, logic, and monitoring systems.

A few common compliance risks include:

  • Human error: Phishing and social engineering threaten to put your data at risk. These two threats rely on human error to be successful. If employees aren’t fully trained and educated on phishing scams and common social engineering threats, it adds risk to the organization.
  • No monitoring: Monitoring is a requirement in several compliance regulations. Monitoring helps administrators identify ongoing threats and provides alerts during a data breach. With monitoring, an organization can reduce the severity of a breach and reduce fines associated with compliance risk after a breach.
  • Improper storage: Sensitive data should be stored in encrypted form and behind authorization and authentication rules. Data disclosed to the public in cleartext format leaves the organization open to a data breach and violates compliance regulations.
  • Failure to audit access: Regulations such as HIPAA have strict rules behind audit trails. Every time someone accesses sensitive data, it should be logged in an audit trail. These audit trails are used in forensics and investigation into a data breach.
  • Misconfigurations: Simple misconfigurations can lead to severe data breaches. If security controls are misconfigured, or any infrastructure is not set up to safeguard data, the organization could be non-compliant and face hefty fines for violations. Configurations across the entire environment should be tested before deployment to production.

How to Assess Compliance Risk

Violations of compliance regulations and the risk associated with threat actors must be assessed before they can be managed. Risk management is the process of defining tools and procedures to safeguard data, but the first step is to assess the environment for any compliance violations. Risk assessment has its own best practices, but the way it’s carried out often depends on the business and the type of data stored. For example, a healthcare organization must follow HIPAA regulations, so assessments specific to HIPAA must be performed.

Organizations assess risk by first performing an audit, often assisted by digital compliance risk solutions. The infrastructure, security controls, current disaster recovery procedures, applications, authorization and authentication controls, storage locations and technology, and any cloud environment variables are just a few of the IT elements reviewed during an audit. Identifying resources and the compliance rules associated with infrastructure tells the organization where the risk lies.

An auditor conducts a review using various risk assessment frameworks determined by the organization’s infrastructure and the reviewer's personal preferences. The purpose of a framework is to apply a standard process for prioritizing risk, sharing information with employees and stakeholders, and providing a roadmap to remediation and deployment of security controls.

An assessment prioritizes risk so that auditors can assign it to the proper team and determine the proper procedures to carry out as risk is managed. Risk can never be 100% reduced, but a thorough assessment with deployed security procedures reduces risk significantly. Risk assessment and management are also necessary to reduce the number of compliance violations so that the organization avoids fines associated with negligent oversight of current regulatory requirements.

Examples of Compliance Risk

Several security missteps contribute to compliance risk, and many of them are related to visibility into the way users work with data and the way tools safeguard from attackers. One common requirement with compliance regulations is keeping software patched and up to date. Administrators who allow public-facing server operating systems to stay unpatched after the vendor releases updates for known vulnerabilities renders the organization non-compliant. Outdated software is a common vulnerability in data compromise and exploits. The Equifax data breach where millions of user records were stolen is an example of a data breach where outdated software allowed attackers access to data.

Failing to audit data access is another common compliance risk. For example, if a credit card user calls into customer service to discuss their account, any representative who reviews their data should be tracked. The data the representative views should leave an audit trail so that any inappropriate access can be assessed and reviewed. Audit trails are also necessary for forensics during incident response after a data breach.