In the dynamic and ever-evolving landscape of finance and business, regulatory bodies are continuing to prioritize the robustness of risk frameworks across all sectors. This commitment to strengthening risk management practices is evident not only in rulemaking initiatives but also in enforcement actions. Across the three lines of defense, regulators are scrutinizing risk and compliance programs to ensure they are well-equipped to handle both current and emerging risks. This blog post delves into the key elements of this regulatory emphasis, highlighting the need for companies to demonstrate their preparedness in various areas.
Aligning Risk and Compliance Programs
Regulators are honing in on the alignment of risk and compliance programs with the current and emerging risks faced by enterprises. This includes evaluating whether these programs are adequately resourced in terms of investment, funding, technology, and skilled staffing. Companies are urged to ensure that their risk frameworks encompass all risk pillars such as credit, liquidity, operational, and compliance risks. Moreover, they need to adhere to reporting expectations and requirements, including the ever-important aspect of climate risk management.
Third-Party and Nth-Party Risk Management
A significant aspect of risk management is the handling of third-party relationships. Regulatory bodies are emphasizing the comprehensive management of these relationships throughout their entire life cycle. This entails subjecting vendors supporting critical activities or those heavily relied upon to stringent oversight. The process also involves considering alternatives for transition, contingency, recovery, and duplicity. This approach serves to mitigate risks arising from dependencies on external entities.
Addressing Disruptive Risks
Disruptive risks, ranging from climate change to cybersecurity threats, have the potential to significantly impact organizations. Regulatory attention is directed toward the planning and mitigation strategies that companies have in place to address such risks. Firms are expected to demonstrate their ability to weather disruptions caused by climate change, geopolitical conflicts leading to ongoing sanctions, economic instability, and cyber threats. Preparedness in this area can help ensure organizational resilience.
Strengthening Information Governance
As data becomes increasingly valuable and vulnerable, information governance processes and controls have taken on paramount importance. Regulators are keen on protecting the confidentiality and integrity of corporate and consumer data. Companies are urged to implement robust data protection measures, which include not only safeguarding sensitive information but also ensuring compliance with relevant data protection regulations.
Navigating Change with Agility
In today’s rapidly evolving business landscape, change is constant. Whether it’s mergers, acquisitions, separations, or workforce shifts, maintaining effective risk management processes during significant changes is crucial. Regulatory bodies are interested in evaluating a company’s agility in adapting its risk management strategies during times of transformation. The ability to seamlessly integrate risk management practices during such changes is a hallmark of a resilient organization.
In conclusion, the regulatory landscape is placing a spotlight on the resilience and adaptability of organizations’ risk frameworks. Companies need to showcase their preparedness in various dimensions, including alignment of risk and compliance programs, comprehensive third-party risk management, mitigation of disruptive risks, robust information governance, and agility during significant changes. By meeting these regulatory expectations, organizations not only ensure compliance but also enhance their ability to navigate the complex and dynamic business environment successfully. Staying proactive and responsive to these regulatory shifts will undoubtedly contribute to the long-term viability of modern businesses.
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