The importance of governance, risk and compliance in the age of digitalization
Governance, Risk & Compliance (GRC for short) is a fairly new model in the corporate context. Its beginnings can be found in the late 1990s and early 2000s. Triggered by major accounting scandals at Enron and WorldCom, among others, there was an increased public and regulatory focus on control mechanisms and corporate governance in the USA. The requirements in the area of GRC are also steadily increasing for companies in the European Economic Area.
In response to the accounting scandals, new laws and regulations were introduced, including the Sarbanes-Oxley Act of 2002 in the USA, which aims to improve financial reporting and restore confidence in corporate governance. Since then, GRC has played an increasingly important role in companies. At the latest after the financial crisis in 2008, the calls for robust GRC frameworks could no longer be ignored.
In the age of digitalization, GRC is constantly facing new challenges and problems. The use of technologies such as cloud computing, big data, the Internet of Things (IoT) and, last but not least, the enormous leap in artificial intelligence (AI) has created potential opportunities, but also risks. In this context, GRC not only serves to comply with regulatory requirements, but is increasingly becoming an integral part of strategic planning and risk management in companies. The following points have become increasingly important in digitalization:
- Cybersecurity: As digital technologies increase, so does the risk of cyberattacks. Companies need to implement robust security systems to protect sensitive data and ensure compliance with data protection laws. Since 2022, the potential for conflict and escalation has increased dramatically.
- Data protection: Compliance with data protection regulations such as the EU General Data Protection Regulation (GDPR) is crucial. Companies must ensure that they process personal data in compliance with the law.
- Newer technologies: The use of advanced technologies AI or machine learning can help to increase and improve the efficiency of GRC processes. It is important to implement and use these new technologies correctly in order to reduce potential business risks. For example, it is recommended that data protection-compliant handling of AI is specified by means of guidelines for employees.
- Training and awareness: Employee training in cyber security and compliance is crucial. The goal is to minimize risk in the company through knowledge of best practices and understanding of secure data handling. This is especially true when dealing with AI in the company. Sensitive customer and company information is particularly critical in connection with AI.
The above points are leading to a redesign of the methods and approaches of the classic GRC model that companies use to develop and implement their GRC processes. In the area of newer technologies, AI is playing an increasingly central role in the GRC environment as applications enable the automation of compliance monitoring and increased efficiency of compliance reporting. With the ability to process large amounts of data and recognize patterns, AI significantly improves risk analysis and risk management. This leads to more accurate risk assessments and enables more proactive management. However, these technologies can also introduce new security vulnerabilities and increase compliance costs, as specialized knowledge is required for monitoring and management.
At the same time, increasing regulation in the areas of data, AI and cyber security is tightening the regulatory requirements for companies. In addition to the GDPR, the AI Act, the Cyber Resilience Act (CRA) and the implementation of the NIS2 guidelines are or will be key for companies in this context.
In conclusion, it can be said that increasing digitalization has increased the complexity of the implementation and execution of GRC models in companies. This is an ongoing process that needs to be constantly redesigned and rethought. The use of new tools and technologies can help to manage this complexity, but is not the only solution. The number of regulatory requirements is also increasing.
Are you already prepared for the future requirements of NIS2 or the AI Act? We would be happy to support you with your current GRC topics.
Author: Roman Scholtysik