Compliance Risks

Regulatory Compliance Risk Management

How to Manage Regulatory Risks

The breadth and complexity of the corporate regulatory environment has made compliance risk management an essential part of mitigating losses and guarding against a business’s reputational damage. Regulatory compliance risk management refers to a business’s efforts to operate within the laws, guidelines, and agreements governing its industry. Specific regulatory concerns vary widely, depending upon the nature of a business. A financial services company will be subject to different regulations than a retail clothing store, but both businesses will need to manage compliance risk.

Types of Business Regulations

While each industry faces its own set of regulatory risks, most third-party issues can be classified by the following risk categories:

  • Anti-Money Laundering (AML): In the United States, financial institutions are required by the Financial Industry Regulatory Authority (FINRA) to comply with the Bank Secrecy Act to perform due diligence to verify the identities of account holders, whether they are individuals or organizations. Compliance is meant to prevent money laundering, by making it more difficult for criminal or terrorist organizations to hide their identities.
  • Anti-Bribery and Corruption (ABC): Myriad laws and regulations seek to stamp out corruption in business. In the U.S., the Foreign Corrupt Practices Act (FCPA) can be used to prosecute U.S. citizens for bribing foreign officials. In this way, the FCPA effectively extends the Justice Department’s jurisdiction beyond the borders of the U.S. Identifying businesses or stakeholders who have been involved in corruption enables companies to make sound decisions about working with these entities.

How to Identify Regulatory Risks

Many corporations hire compliance and risk management professionals tasked with identifying and correcting potential violations and assuring that clear documentation of that activity is maintained. These employees walk factory floors and work facilities, review financial documents, investigate suppliers and customers, and manage ongoing auditable records in the course of their duties.

Regulatory compliance software can also help mitigate business risk. Business information databases make it easier to perform due diligence on customers, partners, and other third parties, matching their names with known entities. Such efforts can surface potential issues early on, including attempts at money laundering or other fraud. Tracing corporate family trees allows businesses to understand the full risk profile of a potential partner and its parent or subsidiaries.

Ready access to business data may also allow companies to uncover information about previous regulatory violations by a supplier or customer. Such insights can prevent reputational damage that could arise from associating with these businesses if there is a pattern of wrongdoing.

Choosing Regulatory Compliance Software

Implementing regulatory compliance protections is essential to safeguarding your business from both threats and penalties. With various regulatory compliance solutions on the market, businesses should be able to address several questions when evaluating software applications, including:

  • What risks am I trying to address? Regulatory compliance software is an asset when investigating a potential business partner’s identity; but some are not as helpful in making sure your current partners maintain compliance. Look for solutions that provide the ongoing data you need.
  • What is the source of this data? Compliance managers must have confidence in the data they use. Ask where the business information comes from, how often it’s updated, and what protections are in place to help ensure accuracy.
  • What are other users saying? Seek out reviews and testimonials to put together an objective view of how well the software performs. Is it user-friendly? Did adoption result in cost savings or risk reduction?

Restricted Party Screening

Restricted Party Screening, also known as Denied Party Screening, involves screening business partners, including customers and suppliers, against restricted party lists to check that they are not prohibited from doing business in the U.S. Dun & Bradstreet combines a tailored compliance process with robust, risk-based screening and monitoring that can help you quickly and confidently safeguard against risk. Restricted Party Screening, available in the credit intelligence platform DNBi, helps businesses perform regulatory risk checks as part of the credit assessment to screen against:

  • Sanctions and Watchlists - Help detect, prevent, and manage sanctions risk of people and/or entity-level that may be associated with Anti-Money Laundering (AML), Anti-Bribery and Corruption (ABC), terrorism, terrorist financing, narco-trafficking, war crimes, and economic sanctions.
  • Special Interest Persons - Also known as Politically Exposed Persons (PEPs), this provides global media coverage of individuals involved in a legal process for serious crimes such as financial crime, tax crime, organized crime, corruption, trafficking, and terrorism financing.
  • Adverse Media Entities - Focuses on companies with a corporate structure and commercial purpose that may have had adverse/negative media coverage on regulatory, competitive, financial, environmental, production, social, and labor-related topics.

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