What is meant by compliance risk?

Compliance risk refers to the potential for financial and reputational damage that arises when an organization fails to adhere to regulatory requirements, laws, or internal policies. This type of risk emphasizes the importance of ensuring that all operations are conducted within the established legal frameworks and that all applicable standards are met. Non-compliance can lead to severe consequences, including fines, legal action, and loss of trust from stakeholders, which can significantly affect a company's financial stability and reputation in the market.

Recognizing compliance risk is crucial for organizations, as it drives the need for robust governance and risk management practices. By actively managing compliance risk, organizations can protect themselves from potential negative outcomes related to regulatory breaches, enhancing their overall resilience and sustainability in a competitive environment.