In an age of hyperconnected business environments, risks rarely exist in isolation. In fact, according to a RIMS (Risk Management Society) executive report,* impacts from risks’ interconnections are only becoming ‘larger, faster and more frequent as globalisation and economic development evolves, the pace of change continues to accelerate and life becomes ever more digitised.’ For Governance, Risk and Compliance (GRC) professionals, the imperative is to understand the implications of the ripple effect of interconnected risks and how best to manage them. This five-minute read explores the connectivity of compliance risks specifically, though the core principles apply across the wider GRC remit.
What are interconnected compliance risks?
Interconnected compliance risks occur when a risk in one area of an organisation triggers or amplifies vulnerabilities in other areas. For example, failure to comply with data privacy regulations (like GDPR) could lead to financial penalties. But the impact doesn’t stop there – such non-compliance may also damage customer trust and loyalty, leading to reduced revenue.
Or take as a scenario, a supplier’s non-compliance with environmental laws. This could lead to reputational damage for the organisation and disrupt production schedules, affecting overall business continuity.
Consider how a security breach might not only violate data protection laws but also expose the organisation to fraud risks, intellectual property theft and legal challenges.
The key takeaway is that compliance risks are interdependent, often exacerbating each other. Without a strategic approach to identifying and mitigating these connections, organisations can face compounded consequences: The ripple opens the floodgates.
Neglecting interconnected compliance risks – what are the consequences?
Overlooking connectivity can lead to compound penalties. The regulators increasingly scrutinise businesses holistically – a lapse in one area may reveal broader compliance failures, leading to higher penalties and in some instances fines.
Stakeholders, from investors to customers, expect organisations to uphold high compliance standards. A failure in one domain can erode trust across the board. Falling short of expectations can dent stakeholder confidence. And in a digital age, negative news travels fast. The impact of a compliance failure can linger for years, affecting brand equity.
How to avoid interconnected compliance risks – strategies for success
1. Adopt an integrated GRC framework
Traditional silos between risk management, compliance and governance functions hinder visibility. By integrating these functions through a unified GRC framework, organisations can identify overlapping risks and streamline mitigation efforts.
2. Invest in modern GRC technology
Technologies like AI-driven regulatory landscape scanning covering all geographies and jurisdictions, advanced risk analytics and real-time monitoring tools within centralised compliance platforms can help organisations spot interdependencies early and assess the broader impact of risks.
3. Conduct regular risk interdependency assessments
Periodically assess how risks in one area could influence others. For example, how might changes in cybersecurity protocols impact data privacy compliance? Scenario planning and stress testing can offer valuable insights.
4. Foster a risk-aware culture
Empower GRC personnel at all levels to be risk-savvy – recognising and reporting on risks. Regular training to emphasise the interconnected nature of compliance issues and encourage proactive risk management will promote a positive risk culture within the business.
5. Collaborate across departments
Collaboration between functions - legal, IT, operations and HR - shares accountability and ensures that no potential connected risk (compliance related or not) goes unnoticed.
6. Engage with external partners and third parties
Maintaining open lines of communication with suppliers and partners will not only ensure their compliance, but can mitigate risks that could spill over into your operations and affect your organisation’s reputation and ability to trade.
Manage compliance interdependencies with Decision Focus
Organisations that successfully navigate these complexities can position themselves as leaders in transparency and trustworthiness. For GRC professionals, this means not just avoiding failures but proactively building resilience and fostering innovation in compliance practices.
Decision Focus award-winning regulatory compliance software empowers you to stem the ripple effect of interconnected compliance risks and ensure calm waters with off-the-shelf functionality that’s quick and easy to implement.
Reach out to find out more or book a personalised demo now.