Difference between revisions of "Three Lines of Defense"

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(Relevant Academy Courses)
 
 
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== Definition ==  
 
== Definition ==  
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The expression '''Three Lines of Defense''' (3LoD) denotes a popular management consultancy scheme for representing the overall [[Risk Management]] activities of (in particular) financial institutions. The origins of the concept are unclear. Broadly speaking it identifies:
  
A popular management consultancy scheme for organizing the overall risk management activities in financial institutions. The origins of the concept are unclear. Broadly speaking
+
* a "first line of defense" (1LoD) provided by the business unit itself (also front office)
it recommends
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* a "second line of defense" (2LoD) provided by a specific and specialized [[Independent Risk Management]] function
 +
* a "third line of defense" (3LoD) provided by an [[Internal Audit]] function
  
* a "first line of defense" provided by the business unit itself (front office)
+
The motivation for the scheme is to stress both the need for accountability for prudent risk management in all parts of the organization and the need for multiple layers of independent control and verification
 
 
* a "second line of defense" provided by a specific and specialized risk management function
 
 
 
* a "third line of defense" provided by an internal audit function
 
  
 
== Issues and Challenges ==   
 
== Issues and Challenges ==   
 
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The concept has been criticized [http://blogs.ft.com/the-a-list/2013/07/09/banks-need-to-question-their-three-lines-of-defence/] for being essentially vacuous when the business line dominates other functions and places excessive emphasis on revenue growth
The concept has been criticized [http://blogs.ft.com/the-a-list/2013/07/09/banks-need-to-question-their-three-lines-of-defence/]
 
for being essentially vacuous when the business line dominates other functions and places
 
excessive emphasis on revenue growth
 
 
 
 
 
  
 
== References ==   
 
== References ==   
 
 
 
<references />
 
<references />
  
 
[[Category:Risk Management]]
 
[[Category:Risk Management]]

Latest revision as of 16:45, 30 November 2019

Definition

The expression Three Lines of Defense (3LoD) denotes a popular management consultancy scheme for representing the overall Risk Management activities of (in particular) financial institutions. The origins of the concept are unclear. Broadly speaking it identifies:

  • a "first line of defense" (1LoD) provided by the business unit itself (also front office)
  • a "second line of defense" (2LoD) provided by a specific and specialized Independent Risk Management function
  • a "third line of defense" (3LoD) provided by an Internal Audit function

The motivation for the scheme is to stress both the need for accountability for prudent risk management in all parts of the organization and the need for multiple layers of independent control and verification

Issues and Challenges

The concept has been criticized [1] for being essentially vacuous when the business line dominates other functions and places excessive emphasis on revenue growth

References

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