Many institutions are already facing these challenges. The need to use digitalisation as a means to increase efficiency, protect margins and compete with new entrants is well known. Managing risks arising from climate change, organizational culture and behaviour, and other issues related to good governance are increasingly recognized as strategic and operational imperatives that cannot be ignored or dismissed as challenges for the future. Legal risk is the risk of financial or reputational loss that can result from a lack of awareness or misunderstanding, ambiguity or reckless indifference to how laws and regulations are applied to your business, its relationships, processes, products and services. [9] The Group will continue to review and improve the above processes and procedures in line with global best practices and standards to ensure that the risk management framework remains relevant and applicable in the current market environment. Examples of regulatory risks in the past include the introduction of the Sarbanes-Oxley Act of 2002, which established stricter accounting requirements and criminal penalties for violations of securities laws. It was adopted after public outrage over several accounting scandals in the early 2000s, including those involving Enron Corporation and WorldCom. The following is an excerpt from Canfor Corporation`s (TSX: PSC) 2017 Annual Report showing higher legal fees due to the expiry of the Softwood Lumber Agreement (SLA). This is an example of a company and an industry suffering from regulatory risks. Costs and income foregone caused by legal uncertainty multiplied by the possibility of the individual event or the legal environment as a whole. [10] One of the most obvious legal risks in the conduct of business, which is not mentioned in the definitions above, is the risk of arrest and prosecution. Political risk refers to Solvay being exposed to circumstances in which the normal exercise of official authority is disrupted. This may be the result of social crisis, political instability, civil war, nationalization or terrorism in the countries where the Group operates or sells products, which may result in delays or non-delivery of products or the unavailability of raw materials or utilities or logistics or transport facilities.
Read our specially selected information on the main legal and regulatory issues in the financial sector. In July 2018, China announced plans to allow foreign retail investors to access A-shares through domestic brokers. In this case, the regulatory amendment was beneficial for individual investors. Tax policy reforms can affect the bottom line of businesses and retail investors. Any changes in income tax legislation directly affect the revenues generated by the respective parties and may present new regulatory risks. We have been successful in helping our clients make changes to organizational culture by developing and training compliance and risk management strategies and programs that have increased risk awareness and controls. To do this, we work within your operational infrastructure with existing staff and, where appropriate, external consultants to help you implement new systems and controls. We regularly advise publicly traded and private companies on enterprise-wide risk management and regulatory compliance issues affecting their operations, including: Companies may be penalized if they do not comply with regulatory changes. It is important for companies to be aware of and manage regulatory risks by ensuring compliance and diversification of their operational strategies. Regulatory risk is the risk that a change in regulations or laws will affect a security, company or sector.
Companies must comply with regulations set by the governing bodies that oversee their industry. Therefore, any change in regulation can have a ripple effect in an industry. One sector with significant regulatory risks to antitrust enforcement is Big Tech, including Meta (formerly Facebook), Amazon, Google, and Apple. This is largely the result of a growing public backlash against their enormous and ever-growing market power and social influence. As you can see, many of the above examples can represent regulatory risks that can have a direct impact on a company`s bottom line. In some cases, the effect is not easily observed, as with prescribed holidays and sick days. Sometimes regulatory changes can benefit investors or businesses. Simply put, while the impact of Covid-19 is undoubtedly a major priority for the financial services industry, it should not overshadow these other important issues.