Compliance risk emerges when organizations fail to adhere to applicable legal and regulatory requirements, industry standards, contractual obligations, or internal policies. This risk can result in fines, penalties, legal action, operational restrictions, or reputational damage. Effective management requires understanding regulatory obligations, implementing controls, monitoring adherence, and maintaining evidence of compliance. For example, a pharmaceutical company faces compliance risk related to FDA drug approval processes, clinical trial protocols, manufacturing quality standards, and marketing claim restrictions; failure in any area could result in product recalls, warning letters, consent decrees, or criminal prosecution.