Which risk management practice is likely to expose an organization to the greatest compliance risk?

Risk transfer is a practice that involves shifting the responsibility or financial burden of a specific risk to another party, typically through contracts or insurance policies. While transferring risk can mitigate the potential financial impact on an organization, it does not eliminate the risk itself. The organization remains ultimately responsible for compliance with relevant laws and regulations.

For example, if a company outsources a function to a third-party vendor, they may transfer the risk associated with that function. However, if the vendor fails to comply with legal standards or breaches regulations, the original organization could still face significant compliance issues, as it remains accountable to regulatory bodies. This scenario can expose the organization to greater compliance risks since reliance on external parties can lead to gaps in oversight and control.

In contrast, risk reduction, avoidance, and mitigation aim to actively manage and diminish risks rather than shift them to another entity. These strategies typically incorporate proactive measures that help ensure compliance is met or maintained, reducing overall exposure to such risks.