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The FDIC defines compliance risk in its guidance for managing third-party risk as “the risk arising from violations of laws, rules, or regulations, or from non-compliance with internal policies or procedures or with the institution’s business standards.”[59]

In a slightly more general version, we define regulatory compliance risk as the risk of failure of a financial institution to comply with all required laws, rules and regulations, across all jurisdictions and business operations in which the institution is active.

A risk event of regulatory non-compliance can lead to significant penalties imposed by regulators. This implies that financial institutions need to be aware at all times of currently relevant regulations, and they need to permanently screen for changes, updates or new regulations both for existing business operations and for new products and service offerings.