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Three Lines of Defence: A Robust Organising Framework, or Just Lines in the Sand?

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  • Howard Davies
  • Maria Zhivitskaya

Abstract

Global regulators agree there is a need to strengthen governance in financial firms. The failure of boards and senior management to consider the risks inherent in their pre†crisis strategies is widely accepted as a crucial factor in the costly meltdown whose consequences continue to be felt. Regulators have tried to strengthen governance mechanisms and, in particular, have recommended a “three lines of defence†model to embed risk management throughout financial firms. Yet while this model is now in use across the financial sector in many countries, its origins are opaque, and its effectiveness untested. Some argue that diffusing the responsibility for risk management in this way in fact reduces accountability and effectiveness. And there is little external validation of the controls firms put in place. Does the three lines of defence system provide a false sense of security? Does it need to be rethought, or can it be enhanced?

Suggested Citation

  • Howard Davies & Maria Zhivitskaya, 2018. "Three Lines of Defence: A Robust Organising Framework, or Just Lines in the Sand?," Global Policy, London School of Economics and Political Science, vol. 9(S1), pages 34-42, June.
    • Handle: RePEc:bla:glopol:v:9:y:2018:i:s1:p:34-42
    DOI: 10.1111/1758-5899.12568
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    Cited by:

    1. Elizabeth Sheedy & Dominic S. B. Canestrari‐Soh, 2023. "Does executive accountability enhance risk management and risk culture?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4093-4124, December.
    2. Power, Michael, 2021. "The financial reporting system - what is it?," LSE Research Online Documents on Economics 110220, London School of Economics and Political Science, LSE Library.
    3. Enrico Guarini & Francesca Magli & Mauro Martinelli, 2022. "La prospettiva del "Sistema di Controllo Interno Integrato2 nella Pubblica Amministrazione: riflessioni a partire dal caso Regione Lombardia," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2022(2), pages 63-89.
    4. Kai-Uwe Seidenfuss & Angus Young & Mohan Datwani, 2023. "Integrating governance, risk and compliance? A multi-method analysis of the new Three Lines Model," SN Business & Economics, Springer, vol. 3(10), pages 1-28, October.

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