Compliance risk One area in which ERM provides tangible value is the area of compliance risk, which can be defined as the risk of legal or regulatory sanctions, financial loss, or damage to an organization's reputation and franchise value.
This type of risk may arise when an organization fails to comply with the laws, regulations, or codes of conduct that are applicable to its business activities and functions. The Federal Reserve expects banking organizations to have in place an infrastructure that can identify, monitor, and effectively control the compliance risks that they face.