Compliance Risk Definition

Compliance risk is an organization’s legal, financial and criminal exposure if it does not follow industry laws and regulations.

Regulations are official rules for how things should be done. The goal of many regulations is to protect people and sensitive data. Organizations must set up best practices and tools to make sure they’re keeping data safe. If they don’t, they can face hefty fines, lawsuits—or even criminal prosecution.

What Is Compliance Risk?

Running a business is inherently risky. Any business practice that doesn’t follow the law or industry rules is a compliance risk. When an organization isn’t compliant, it risks potential financial, legal and other losses. For example, if an organization fails to comply with data regulations, it can be fined or face lawsuits when a cyber attacker steals data.

When building infrastructure, protecting data should be a top priority. This means writing coding rules, developing databases and setting up application procedures, all with data safety in mind. Organizations typically set their security controls to meet regulatory standards for HIPAA, PCI-DSS, SOX, GDPR and others.

Best practices for data integrity provide a roadmap for data safety. They include rules like who can access data. Smaller organizations that are unfamiliar with best practices should seek guidance from an expert.

Common Types of Compliance Risk

The best way to limit risk is to find your weak links. Human error, server misconfigurations or even an oversight in application logic are compliance risks. Here are some common compliance risks:

  • Human error. Phishing and social engineering succeed because people make mistakes. If employees are not regularly trained on common cyber threats, your data is at risk.
  • Lack of monitoring. Compliance regulations often require data monitoring. With monitoring, administrators can identify active threats and get alerts when there’s a data breach. Both of which can lessen the severity of a breach and subsequent fines.
  • Improper storage. Sensitive data should be stored in encrypted form. Using cleartext format puts your organization at greater risk if there’s a data breach.
  • Failure to audit access. Only authorized and authenticated users should have access to data. Every time someone accesses data it should be logged. These audit trails are not only useful in forensic analysis of data breaches, but they’re also required by regulations like HIPAA.
  • Misconfigurations. Simple misconfigurations can lead to severe data breaches. Before deployment to production, test configurations across the whole environment.

How to Assess Compliance Risk

Compliance risk assessments are industry- and data-specific. For example, healthcare firms must follow HIPAA regulations. So an assessment of a hospital will always refer to HIPPA rules. Every risk assessment is unique.

Organizations use audits to assess risks. Often, these audits are assisted by digital compliance risk solutions. These audits examine the organization’s infrastructure, including its:

  • Security controls
  • Disaster recovery procedures
  • Applications
  • Authorization and authentication controls
  • Storage and cloud environment

These audits identify how well the organization follows data storage and management regulations.

Risk assessment frameworks and guidelines help auditors when reviewing and ranking the riskiest areas of the business. These guidelines also provide a roadmap to fixing compliance issues. Auditors also may recommend ways to reduce violations.

Risk can never be eliminated. But a complete risk assessment can greatly reduce risks if it’s followed by better security controls.

Examples of Compliance Risk

Security missteps often cause or contribute to compliance risk. Often, administrators can’t see how users are working with data. They also don’t have visibility into how tools are protecting data. Here are two common compliance risks:

  • Not keeping software patched and updated. Cyber attackers often exploit vulnerabilities in outdated software. When a server’s operating system remains unpatched after an update is released, the organization becomes non-compliant. A good example of this risk is the Equifax data breach. There, outdated software allowed attackers to steal millions of user records.
  • Not auditing data access. If a person calls into customer service to discuss their credit card account, each representative who interacts with that data should be tracked. An audit trail ensures access to data can be checked and assessed. A trail is also important during and after a data breach for forensic analysis.

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