Governance, Regulatory and Legal risks are those that can have a material impact on the operations and financial position of a business as a result of a break down in controls, non-compliance, legal claims, fines and penalties and the inability to enforce agreements/arrangements/terms and conditions.
This risk arises from non-compliance with prevailing regulations, a breakdown in the governance of the operations of the organisation and legal risk arising from contracts, disputes, claims, non-performance. This risk can also arise from actions involving HR/People, poor strategy, socio-economic conditions, environmental issues, debtors and credit extension.
This risk can manifest itself by severely impacting operations as a result of disputes with regulators, suppliers, service providers, customers or employees as well as cause reputational damage to the organisation. This will result in financial loss due to legal costs, fines for non-compliance, loss of business activity, credit losses, settlement of claims and disputes and ultimately impact the balance sheet.
Governance, Regulatory and Legal risk issues can have a major impact on the operations and financial performance of an organisation. These impacts can be both direct and indirect and happen suddenly or over a period of time.
Governance, Regulatory and Legal risk management starts with a review of the level of governance in the business, the robustness of procedures and controls throughout the business and the state of contracts, agreements, terms and conditions of business and a review of documentary controls.
The management of Governance, Regulatory and Legal risk will ensure that the business is better equipped, and in a position to effectively control its operations, customer and supplier arrangements, regulatory issues and legal risks in the markets and countries in which it does business and operates.