What does "compliance risk" in Operational Risk Management (ORM) refer to?

Compliance risk in Operational Risk Management (ORM) specifically pertains to the potential for legal or regulatory sanctions resulting from an organization's failure to adhere to laws, regulations, and internal policies. This risk emphasizes the importance of ensuring that all operational processes align with statutory requirements and industry standards. Non-compliance can lead to significant penalties, legal actions, reputational damage, and financial losses, underscoring the necessity for robust compliance frameworks within organizations.

Addressing compliance risk is crucial for maintaining operational integrity and avoiding the adverse consequences that may arise from non-compliance, such as fines or sanctions imposed by regulatory bodies. Organizations implement compliance programs, conduct audits, and provide employee training to mitigate this risk effectively.