Keys to Effective Legal Risk Management

Today, many companies have made significant efforts to implement risk management tools to prevent problems that can cause monetary or non-monetary losses to their business. Within this mapping, it is important to include the identification, control, and management of legal risks.

This mapping is a dynamic process as the company expands into new territories, ventures into other lines of business, or implements new products or services. It faces the challenge of understanding the laws, regulations, legal requirements, licenses, and permits, as well as the updates or modifications that are periodically made that impact its business processes.

A well-known principle of law is that ignorance of the law does not exempt one from compliance. Therefore, proper legal risk management is non-negotiable for companies, as it helps them understand the legal and regulatory environment and the legislative changes that occur in the industry or sector in which they operate.

The Basel Committee on Banking Supervision defines legal risk as “the possibility of being sanctioned, fined, or required to pay punitive damages as a result of supervisory actions or private agreements between the parties.” Broadly speaking, legal risk is the potential non-compliance with laws, regulations, or contractual obligations, whose risk materialization can mean fines, sanctions, suspension of operations, or dissolutions that could jeopardize business continuity.

Identification and types of legal risks

There are different ways to classify legal risks; however, the most general ones are the following:

    • Regulatory or compliance risks: Related to non-compliance with laws and regulations, as well as their modifications or reforms. In some cases, this type includes non-compliance with company policies and internal manuals.
    • Contractual risks: Responsibilities arising from commitments or obligations acquired with the company’s main stakeholders, such as creditors, suppliers, partners, among others.
    • Litigation risks: The possibility that the company faces lawsuits, complaints, or claims from its customers, suppliers, or employees.
    • Constitutive and extinction risks: Related to the constitution of the company and possible processes of extinction, dissolution, or bankruptcy.

These are just some of the types of legal risks that a company can identify and map to control and monitor them as part of its business continuity and development strategy.

Action plan and management of legal risks

Once the identification process is carried out, it is recommended to establish an action plan that provides a diagram of the identified gaps, the exposed regulation or commitment, the risk event or its materialization, and the applicable mitigation action.

For example, if to operate in the financial sector, a license issued by the corresponding regulatory entity is required, and its renewal must be managed every 3 years, meeting certain legal requirements for its application and submitting the renewal within a prudent time frame before the license expires, establishing a plan with dates, tasks, responsibilities, and alerts will greatly help to comply in time with such provision and avoid suspensions or sanctions.

Monitoring of legal risks

Another highly beneficial topic is the monitoring of legal risks. The legal framework varies and adapts as the market progresses and develops. Monitoring allows for a periodic review of possible modifications, reforms of applicable legislation, new obligations assumed by the company, as well as the company’s compliance with these modifications or new regulations.

The implementation of auxiliary technology, as well as compliance matrices, allowing adequate and systematic monitoring of legal risks, and the designation of a compliance officer, will be appropriate measures for the company’s legal risk management.


In summary, legal risk management is a crucial component in the strategy of any modern company. The identification, evaluation, and mitigation of legal risks not only help prevent economic losses but also safeguard the company’s reputation and continuous operation. Given that the legal environment is dynamic and constantly changing, it is essential for companies to adopt a proactive and systematic approach to stay up to date with applicable laws and regulations.

Effective legal risk management is not an option but an imperative necessity for any company aspiring to grow and thrive in an increasingly regulated and competitive market. By recognizing and diligently addressing legal risks, companies can protect their interests, strengthen their market position, and ensure smooth operations in compliance with applicable regulations. At Consortium Legal, we are here to support you in this process, please do not hesitate to contact us at for further assistance.