What does the term “compliance” refer to in risk management?

The term "compliance" in risk management specifically refers to adhering to laws, regulations, and standards that govern an organization's operations. This is critical because organizations operate within a legal framework that includes various regulatory requirements, industry standards, and best practices designed to ensure the safety, security, and ethical considerations relevant to their activities. Compliance ensures that organizations not only avoid legal penalties but also maintain their reputation and trustworthiness in the eyes of stakeholders, customers, and the public.

By focusing on compliance, organizations can identify and manage risks associated with non-adherence to external requirements that could lead to harmful consequences such as financial loss, operational interruptions, or damage to reputation. This term encompasses a proactive approach to risk management, where the focus is on aligning organizational practices with external obligations rather than only internal policies or trends.