In terms of compliance, what is the "3 lines of defense" model?

The "3 lines of defense" model is a vital concept in risk management and internal controls, which plays a crucial role in ensuring compliance within financial institutions and other organizations. This model provides a structured approach to risk management by delineating responsibilities across different levels of an organization.

The first line of defense consists of operational management, who are responsible for owning and managing risks directly. They implement controls and ensure adherence to internal policies and procedures. The second line of defense includes functions such as compliance and risk management, which provide oversight and develop frameworks to manage risks and ensure compliance with regulations. The third line of defense represents internal audit, which provides independent assurance regarding the effectiveness of governance, risk management, and internal controls.

This model emphasizes the importance of coordination and communication among the different lines to create a strong defense against potential compliance failures and enhance the overall governance framework of the organization. This structure effectively allows organizations to not only identify and mitigate risks but also to promote a culture of compliance throughout the organization.