Category Archives: Regulatory Risk

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Crude Oil Safety Mandates Signed into Law

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A transportation law signed by President Obama earlier this month includes new mandates for freight trains transporting crude oil through the United States. The law requires that tank cars used for transporting crude oil be replaced by March 1, 2018, phasing out older DOT 111 tank cars for shipment of flammable liquids, including most Bakken crude oil, according to the U.S. Department of Transportation.

The new tank cars will have thicker steel shells, insulating materials, full-size metal shields at each end and improved outlet valves underneath the car.

DOT tank car

The DOT said that the Notice of Proposed Rulemaking (NPRM) also outlines a classification and testing program for mined gases and liquids and new operational requirements for high-hazard flammable trains (HHFT) that include braking controls and speed restrictions.

A rail disaster in Lac-Mégantic, Canada, on July 26, 2013, that killed 42 people brought a heightened focus on the dangers of transporting highly flammable Bakken crude oil by train.

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The Journal News reports that the new law requires freight railroads to provide real-time data on flammable liquids shipments to state emergency response commissions (SERCs) to be shared with local first responders. The law codifies what had been a regulatory emergency order requiring trains containing one million gallons of Bakken crude oil to notify SERCs or other appropriate state-delegated entities about the operation of these trains through their states.

For the first time, the rail safety section of the new transportation law also allows states and localities to obtain inspection reports on privately owned rail bridges filed with the Federal Railroad Administration by freight railroads.

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Localities will be eligible for 80% federal funding to finance safety improvements at dangerous railroad crossings.

According to the DOT, the rule:

  • Requires an enhanced tank car standard and an aggressive, risk-based retrofitting schedule for older tank cars carrying crude oil and ethanol.
  • Requires a new braking standard for certain trains that will offer a higher level of safety by potentially reducing the severity of an accident.
  • Designates new operational protocols for trains transporting large volumes of flammable liquids, such as routing requirements, speed restrictions, and information for local government agencies.
  • Provides new sampling and testing requirements to improve classification of energy products placed into transport.

Balancing Risk and Compassion: Life Sciences Companies Face New Risks from Expanded Access

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Pharmaceutical companies operate with a singular objective: bring drugs to market. This is how they profit, how they ensure that their products help the most people, and how they maintain the resources to continue innovating.

The lifecycle of drug development can be complex and onerous, despite improvements to the regulatory approval process over the past several years. Now, a trend sweeping the industry is forcing many pharmaceutical companies to decide under which circumstances they’re willing to divert resources from their mission of helping the masses.

Expanded Access, or “Compassionate Use,” refers to the use of an experimental drug not yet approved by the FDA to treat a critically ill patient outside of a clinical trial. The FDA received more than 1,800 requests for access to experimental drugs last year and, over the last five years, it has approved 99% of these requests.

But ultimately, once requests are approved by the FDA, it’s up to manufacturers to provide the drug to these patients, many of whom are children, and many of whom have just months left to live.

Companies are then faced with a choice: to provide an unapproved drug to individual patients, which can delay the process of making the drug widely available, or to deny the request and risk backlash from the public, who see only a dying patient and the pharmaceutical company that could save them. In several cases, the latter has fueled social media campaigns demonizing companies for withholding potentially life-saving medicines.

How a company handles expanded access requests can affect its reputation and financial stability. Pharmaceutical executives often operate under a microscope, where patient outcomes are the key to keeping investors on board. As expanded access patients often do not qualify for clinical trials, they may be higher-risk candidates, so reporting their results to the FDA could potentially prolong approvals and market availability. On the other hand, a company that denies an expanded access request can face significant reputational damage and even legal action if investors believe that management decisions hindered the company’s progress.

Small and mid-size life science firms in particular may fear that they don’t have the resources to navigate expanded access cases. But requests for experimental drugs are on the rise: the FDA saw a 92% year-over-year increase in requests in 2014. Companies need to prepare their approach and policies before they find themselves in the throes of a difficult decision with pressures mounting from both sides. Here are four ways they can set themselves up to make informed decisions about balancing risk with compassion:

Monitor the Regulatory Environment

Over the last year, the FDA has been working to simplify the process for physicians requesting access to experimental drugs on behalf of patients. In February 2015, the agency streamlined the application form, which now requires physicians to submit just eight types of information, as compared with 26 types in the previous form.

The FDA has also been working with life sciences companies to find alternative solutions to expanded access when needed, such as designing expedited open-label trials for these patients.

Additionally, as of August 2015, 24 states have introduced right-to-try bills, which allow physicians to request experimental drugs without going through the FDA’s application process.

With both federal and state governing bodies paving the way for easier access to experimental drugs, the decision to provide these drugs falls squarely on the shoulders of corporate leadership at pharmaceutical companies. These firms also ought to keep in mind the need to prioritize building and maintaining relationships with the FDA, which can be key in developing a creative solution.

Update Your Crisis Management Plan

Crisis management plans are sometimes written in broad strokes. In preparing for expanded access cases, risk managers need to bring together leadership from various departments—senior management, investor relations, finance, human resources, etc.—to weigh in on the specific risks associated with experimental drugs. Many firms will seek outside counsel to guide the process.

At a basic level, a crisis plan should map out vulnerabilities across all risk areas. For example, companies need to consider the process for securing their facilities, fielding press inquiries, addressing social media backlash, managing investor concerns and navigating potential lawsuits.

Most importantly, companies need to develop the principles that will guide decisions in crisis situations. Rather than scrambling for direction in the heat of public scrutiny, companies should establish a clearly-stated policy and set of guidelines for participation in expanded access programs. This will serve as the foundation of a response if an issue arises. Management must then be prepared to defend that position to all stakeholders, including employees, investors, patients, physicians and potentially press.

Evaluate and Re-evaluate Your Insurance Policies

Organizations need to consider which financial risks they can transfer to their insurance policies. Not everything will be insurable, but a strong policy can provide protection if an expanded access case threatens a company’s financial stability.

This starts with a comprehensive review of a company’s insurance portfolio with the issue of expanded access in mind. Oftentimes, risk managers revisit their policy language through the lens of a specific issue and realize that their expectations for coverage don’t accommodate current events. This can be the case with expanded access.

When reviewing their policies, companies need to understand the intent of the language relevant to expanded access and work with their broker to make sure the coverages are as granular as possible.

Lead the Way

This year, Johnson & Johnson created a Compassionate-Use Advisory Committee composed of doctors, bioethicists and consumer advocates to evaluate expanded access requests and make recommendations to the company’s clinicians. While many have hailed this as a creative solution for maintaining ethical standards, smaller companies with fewer resources cannot as easily take such an approach. These firms have an opportunity to set the standard for managing expanded access cases by developing thoughtful policies, collaborating with regulators and academics and, of course, addressing risks to business from the onset.

Risk Link Roundup

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Link Roundup

Here are a few recent articles that highlight issues impacting the world of risk and insurance, including blogs and articles about FIFA corruption, whistleblower programs—both pro and con—and the supply chain in outer space.

Iran, Russia Reject Idea of Joint Oil Output Cuts with Saudi Arabia
Reuters: Oil-producing countries looked unlikely to reach a deal to lift languishing prices at a meeting on Friday after Iran, Iraq and Russia swiftly rejected a surprise proposal that appeared to have been floated by Saudi Arabia.

16 Additional FIFA Officials Indicted for Racketeering Conspiracy and Corruption
U.S. Department of Justice: A 92-count superseding indictment was unsealed earlier today in federal court in Brooklyn, New York, charging an additional 16 defendants with racketeering, wire fraud and money laundering conspiracies, among other offenses, in connection with their participation in a 24-year scheme to enrich themselves through the corruption of international soccer.

Are Whistleblower Reward Programs Really a Good Idea?
FCPA Blog: Since the start of the SEC whistleblower program in 2011, the agency has awarded $54 million to 22 whistleblowers “who provided the SEC with unique and useful information that contributed to a successful enforcement action.”

Yes, We Need Whistleblower Rewards
FCPA Blog: Congress could not have been any clearer in its statutory design. Nor the SEC any more outspoken in its revitalized approach to government enforcement. Whistleblower rewards work.

Supply Chain Challenges in Space Exploration
OPS Rules Blog: Space supply chains are low demand and highly schedule driven. This might seem to be in contrast to commercial supply chains, which deal with high volume and compressed lead times. But applying the principles governing the commercial fast paced supply chains to the space supply chain can make it more agile and cost efficient.

Vendor Risk Management: The Full Definition

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cyber partners

Vendor risk management (VRM) is the practice of evaluating business partners, associates, or third-party vendors both before a business relationship is established and during the duration of your business contract. This is an important concept and practice to put in place during the evaluation of your vendors and the procurement process.

A key feature of VRM is understanding your vendor’s cybersecurity program. This allows you to understand how well they’re going to be able to secure your data, both from a physical and cyber perspective.

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VRM helps ensure that your vendors have a contractual obligation for specific requirements and standards, therefore mitigating your organization’s risk.

There are a number of risks vendors can bring to your enterprise, including:

LEGAL RISK

There are many legal risks associated with sharing sensitive information with third parties. For instance, if your vendor is breached and you lose your customers’ personally identifiable information (PII) like social security numbers or health care records, the law clearly states that you are responsible—not your vendor. Or, if you fail to spell out security expectations in your vendor contract, you may have no legal recourse whatsoever if your vendor compromises your data.

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REPUTATIONAL RISK

So much of vendor risk management is based on reputation. You are able to ask a lot of questions at the beginning of the vendor procurement process that may help you weed out the businesses you’d rather not work with, but you should also be monitoring news feeds during the procurement process. You, of course, would want to know if a business associate has been hit with a lawsuit during the time you were engaged with them and how that could affect the performance of their contract with you. And don’t forget about the reputational harm that could affect your company if your customers’ sensitive information is stolen due to an unsecure vendor.

FINANCIAL RISK

If a vendor has a poor financial record or past performance, you’ll want to know that information before engaging in a business relationship. That’s why a lot of companies do credit monitoring for their vendors. You’ll also likely want to ask other organizations who have previously done business with the third party in question for references. This way, you’ll be able to clearly evaluate the vendor’s project plan and all the different things they’re planning to do before entering into a contractual relationship.

CYBERRISK

Of the various risks a vendor poses, there are some things you need periodic updates on, which are relevant only at certain points of a business relationship. If you’ve established a vendor’s credit worthiness at the beginning of the process, for example, you’ll likely feel quite comfortable about their financial standing during the rest of the process.

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This is a good example of how some elements of vendor risk do not require continuous monitoring. Cyberrisk, however, is not quite as simple.

Cyberrisk is unique in that things can happen on a moment’s notice which could catastrophically damage your organization. You simply cannot rely on periodic or infrequent snapshots and assessments of your vendor’s health to understand cyberrisk. The thing that makes cybersecurity “special” is that it can pose financial, reputational, and legal risks.

It’s important to understand that cyberrisk management doesn’t end when your vendor signs a contract. Managing vendor cyberrisk requires persistent awareness of how the vendor is doing with your security expectations. You have to know at all times whether they are accessing your network in an unauthorized manner, or if your most important data could be jeopardized by their actions. Any slip-up or incident may have a catastrophic impact on your business (and lead to some pretty embarrassing headlines).

CONSIDER THIS

Some losses from “traditional risks” can be recuperated easily and quickly. If a food and beverage vendor doesn’t show up one day to cater a meeting, you’re only dealing with a limited amount of loss. Or, if a vendor doesn’t complete a project to your expectations, there are reasonable steps you can take to remedy the situation without dramatically impacting the bottom line.

But if someone hacks into your corporate network through a vendor and steals your most precious data, the outcome could be catastrophic. Your reputation can be damaged irrevocably, financial losses can be huge, and legal liability may be hard to transfer to your vendor. This is why vendor risk management—and especially IT risk management—is not something to be taken lightly. All angles must be examined with every vendor, both large and small.