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Legal Risk

Legal Risk

Legal risk refers to the potential for an organization to face legal consequences and financial or reputational harm as a result of its actions or decisions that violate laws and regulations.

Basel II classified legal risk as a subset of operational risk in 2003. This conception is based on a business perspective, recognizing that there are threats entailed in the business operating environment. The idea is that businesses do not operate in a vacuum and in the exploitation of opportunities and their engagement with other businesses, their activities tend to become subjects of legal liabilities and obligations. - Legal Risk, Wikipedia

Regulations​

Regulation

This section of the body of knowledge looks at the different laws that might apply to the consumption or contribution of open source within regulated industries.

Accountancy Regulations

Accounting regulations for financial institutions are a set of rules and standards that govern how these institutions record, report, and interpret financial data.

Cross-Border Obligations

Many organisations are bound by what is allowed to cross their borders. For example: in Swiss banks, there are strong controls in place to make sure no data leaves Switzerland. This is a consideration for code too, as code contributed to GitHub is data leaving the organisation and there may be requirements around these obligations.

Cyber-Security

Cybersecurity regulation refers to legal measures and guidelines designed to protect networks, devices, programs, and data from digital attacks, theft, damage, or unauthorized access. These regulations impose standards, procedures, and responsibilities on individuals, organizations, and governments to ensure the confidentiality, integrity, and availability of digital information and systems.

Export Controls

Export controls are legal and regulatory measures implemented by countries to control the export of sensitive goods, technology, software, and information for reasons related to national security, foreign policy, or economic protection.

Intellectual Property

Open source software is typically distributed under specific licensing terms and conditions that may affect how the software can be used, modified, and distributed. Compliance with these licensing requirements is essential to ensure that the organization does not infringe on the intellectual property rights of the software developers or violate the terms of the license.

Personal Information

Leakage of personal information has a knock-on to Reputational Risk and Legal Risk, as explored in the section below. As noted in the BOK activities addressing supply chain security, incorporating secure development into the Software Development Lifecycle is therefore also a compliance issue.

Anti-Money Laundering

Anti-money laundering (AML) regulations are a set of procedures, laws, and regulations designed to halt the practice of generating income through illegal actions, such as laundering money. The use of open source software may present risks related to anti-money laundering and sanctions compliance, particularly if the software is used to facilitate financial transactions.

Anti-Trust Regulations

Anti-trust laws apply to banks by promoting competition and prohibiting behaviors that restrict it.

Communications

Regulated industries need to track communications internally and externally. Keep in mind these broad principles about communication in regulated firms:

Counter-Terrorism

These laws require financial institutions to implement measures that prevent, detect, and report suspicious activities or transactions related to the financing of terrorism or terrorist organizations.

Labour Laws

Labour laws apply to all sectors, including banking. While they don't specifically target the banking industry, they do have significant implications for how banks operate and manage their employees.

Risk Management Activities​

Compliant Open Source Consumption

Using open source within regulated organisations must be done in accordance with the policies and procedures in place to control risks and adhere to regulation. In this article we will look at: