Legal risk can be defined in several ways, the most common being the following: An example of legal risk may be when, by promoting teleworking, a company complies with new regulations approved by different governments. These rules concern, for example, the protection of workers or health and safety at work. Therefore, the company must have a plan in place to prevent, assess and mitigate these legal risks. Legal risk management is essential in highly regulated industries such as finance or pharmaceuticals and is typically part of organizations` compliance systems. Threats arising from non-compliance with legal and contractual obligations should be taken into account in order to have a comprehensive risk mapping and a management system to identify, assess and manage them adequately. Thus, it is a risk that has the dual strategic and operational condition, although in the financial environment it can influence strategy more strongly. In other cases, the dispute is the result of a sharp drop in a company`s share price, not its cause. Either because shareholders hold their directors legally responsible for their incompetence, or because they accuse them of not providing adequate information. It is questionable whether this makes economic sense, because at the end of the day, the money leaves the company and goes back to the part that is the responsibility of the lawyers (which can represent a third of the remuneration). Of course, losses due to non-compliance also fall within the definition of such a risk. The post-crisis regulatory reforms were approved by the Group of Central Bank Governors and Supervisors (GHOS), the supervisory body of the Basel Committee, on 7 December 2017. The adjustments to the Market Risk Management Framework were approved by GHOS on January 14, 2019.
The revised rules will strengthen banks` resilience and restore confidence in the banking system. Author: Danilo Vásquez Quiroa Title: Risk Management in Commercial Banking and Legal Risk Management Domain: Country: Profile: Programme: Master in Risk Management Available for download: Yes View more student publications Click here Disseminating information, innovative ideas and academic knowledge is an important task of the Atlantic International University. We will publish news, articles, comments and other publications from our students and other contributors. If you wish to contact the author for professional reasons, please send your request in this way. To learn more about IAU Open Access, click here. Legal risk arises in what is known as the risk of disagreement, which occurs when the parties do not agree on the interpretation of the terms of a contract previously signed by the two. Like the other Basel Committee rules, the Basel III requirements apply at least to internationally active banks. Members undertake to implement and enforce the standards in their national or regional territory within the time limits set by the Committee. As the risk of litigation is difficult to assess, markets often severely punish the companies involved. As a result, the indirect costs of increased financial charges can become as significant as a judgment or eventual settlement.
Ando. Search for training on legal risks. Tags: Regulatory compliance, Risk management, Business management, Legal risk Legal risk must be considered by all departments of the company. And it`s a multi-localized risk that affects different environments. The main types of legal risks are: The market value of a company`s stocks and bonds decreases when the company announces that it is entering litigation.