Speaker 1: Hey everybody and welcome to KC Compliance Learning. I am Kudzai Chaka, your resident compliance specialist, expert, enthusiast, whatever word floats your boat, go ahead and use that. And I'm here because I have so much information to share with you. I love knowledge sharing about the subject of compliance, risk management, compliance careers, basically all things compliance. I am here to discuss it with you. And today I've got a great video for you. And that video is all about compliance risk versus legal risk. And sometimes people aren't quite clear. Are they one and the same thing? Are there two different things? Are there similarities? What are the differences? So I'm here to hopefully shed some light and clarify a few things for you on that subject. But before we jump straight into it, I just want to say, please remember to subscribe to the channel and show your love, show your support, like the video, share it with a friend, really do appreciate all the love and support you guys show this channel. And yeah, more great videos to come. So you're definitely going to want to click on that notification button so that you're amongst the first people to hear and find out that, whoa, there's a new video on Casey compliance learning. Let me go and check it out. Okay. All right. Awesome. So let's jump into it. Legal risk. What is it? And the weird thing about it is sometimes when the term legal risk is used, it actually does refer to your contractual type issues and your compliance type issues. So I'm going to distinguish it a little bit more by when I refer to legal risk, I'm talking about your litigation risk, your contract risk. And then when I'm talking to about compliance risk, we're talking more about the regulatory space. So when we're talking about legal risk in the way that the context that I've explained it to you really are saying, what is the risk that a company faces in terms of potential litigation, legal action as a result of the products and services and actions or in actions that it takes. And I'm sure we've seen examples in the media where you have an organization that recalls a product because they found that, you know, potentially it's contaminated or something is faulty. We've seen it with car manufacturers. We've seen it in the FSCG space. And all of that is that they're recalling those products because if it turns out that there is harm that someone experiences as a result of the product or service, those people, the customers, can potentially take legal action against them and seek to be made whole again or to get damages in terms of, you know, the experience that they've had with this organization's products and services. And if they fail to take that action to recall in talking about an omission, then that actually will exacerbate that issue. So really, legal action is really what is the exposure that a company has in terms of legal action, having to go to court and defend themselves or choosing to settle, you know, and what is the cost of the legal action going to be in terms of paying the lawyers, whether it's six months, two weeks, whatever, however long potentially a trial can go for, or if they decide up to the point that they settle, all of that cost is what they're looking at and what we're referring to when we talk about legal risks. And we are also talking about what happens when a contract is breached. For example, if you and I enter into a contract and I breach that contract, you can sue me to be made whole again and say, I was supposed to perform one, two, three things, I didn't perform those things, and you suffered as a result, and you need to be made whole, maybe you had to employ someone else to do what I was supposed to do. So all of that, those contractual obligations, making sure that contracts have got the right terms and conditions and indemnities and all that wonderful stuff that lawyers do so well, that all falls within the realm of legal risk. And obviously, as a result of what I've just explained to you, legal risk is something that you definitely, absolutely need to have a law degree experience, be admitted, all that good stuff in order to do it effectively and well. So that's what we're talking about when we're talking about managing legal risk. Compliance risk, on the other hand, and this is where the confusion kind of comes in. Because if you look up legal risk, you will see a lot of definitions that also incorporate compliance risk. And that is because of the element of the fact that there are laws and regulations involved. Compliance risk is looking at what happens if we fail to comply or to meet our obligations or to do the requirements as stipulated in a specific law or regulation. And when you're managing that risk, you're really managing in terms of how do we identify what our regulatory risk and obligations are? How do we manage those risks, such as, you know, the requirement to do suspicious transaction monitoring, the requirement to issue customer statements and to treat our customers fairly, you know, and all the market conduct activities, let's say in terms of trading a publicly listed company, all of those things are what fall within what we're talking about in terms of compliance risk. So it's really about complying with laws and regulations that apply to your business. So if you think about it, you can have a compliance risk, you can have a legal risk and not have a compliance risk. Because if we enter into a contract that is not dictated by laws and regulations, then if I default that contract, we're talking purely about legal risk. But sometimes you can have compliance risk that's also legal risk. So I can understand why, you know, there can be confusion in terms of are the two the same. But one thing is certainly clear that when we're talking strictly about regulatory compliance and the process of conducting compliance risk management, you don't strictly speaking, need to have a law degree in the same way that you would for, you know, contract drafting, litigation, and that sort of legal risk space. So that, in essence, is the difference between the two. And I hope you have a lot more clarity around. And I do know that it's sometimes confusing, it might need some time to digest. But the two are similar, similar. And sometimes compliance risk sits under the whole legal risk umbrella. But as a discipline in and of itself, we're talking specifically about regulatory compliance, which comes about as a result of your obligations to meet regulatory requirements. Let me give you a little example to kind of illustrate it a little bit more. Think about an organization that has a regulatory obligation to conduct testing on its products before it sells them to customers. They don't do that testing. Well, there is slippage, something happens, there's contamination in the product, let's say it's something that we eat, and that and someone experiences harm as a result of that. In that instance, both of these issues of legal risk and compliance risk are going to arise. Compliance risk because as an organization, they failed to meet their regulatory obligations in terms of conducting proper testing on their food, drinks, whatever the consumable was, and there's a regulatory issue in that respect. And now it has caused harm. So those customers can now come and implement or institute legal action against the company, which is a legal risk, because then the company now either has to defend itself, or settle and pay their money in terms of the damages they faced, the health issues that they're now facing, if it's like it's very serious, I don't know, asbestos poisoning kind of thing. So the two can coexist, and the two can arise out of the exact same event. But I do hope that you recognize that there are nuances and differences between the two that make them two different risks that can arise out of exactly the same set of facts, and also require different skill sets in order to manage them effectively. I hope this was helpful to you guys. You've understood it a little bit more. Of course, you know, I'm giving you a very high level kind of description and explanation, as one would expect from a video of a few minutes on YouTube. But do go into your research and learn a lot more, especially if you're in the legal space. And you want to kind of straddle across both legal risk, contractual risk, litigation risk spaces, and also do compliance risk management, because you do need to recognize the different skill sets that come into play in risk managing from a compliance perspective and risk managing from a legal perspective. Thank you so much for watching this video, guys. I hope you enjoyed it. Do tell me in the comments what your thoughts are. If this is something that's helped you, if you've got any questions, pop them in the comments. Happy to answer your questions. But until then, and the next video, bye.