The Traditional 3 Lines of Defense (3LoD) Model in Today’s Ever Shifting Risk Landscape

3 Lines of Defense (LoD) Model in Today’s Ever Shifting Risk Landscape

As the risk landscape shifts to become increasingly more complex, the traditional 3 Lines of Defense (3LoD) Model may not be as comprehensive. Today, stakeholders such as internal auditors, enterprise risk management specialists and compliance officers often work closely together to manage the risks faced by the organisation. Cross-functional collaboration in risk management often introduces a unique perspective, which is extremely valuable in order to obtain a holistic risk management overview.

However, the challenge with this approach is to ensure that collaboration across multiple departments and functions is carefully coordinated – which can be particularly challenging when communications and large amounts of data are transmitted through manual spreadsheets. On top of that, stakeholders often have different interests and objectives.

What does the traditional 3 Lines of Defense Model involve?

Historically, the 3LoD Risk Management Model guides organisations to identify, mitigate, and manage risks throughout their enterprise. This framework consists of three separate units:

• The 1st Line of Defense

Management has the primary responsibility of owning and managing risks associated with day-to-day operational activities. Other responsibilities include operations and implementation of internal controls.

• The 2nd Line of Defense

The second line of defense enables the organisation to ensure compliance and oversight of frameworks, policies and tools that support the identification of emerging risks and, ultimately, the risk and compliance management capabilities of the organisation.

• The 3rd Line of Defense

The third-line function provides objective and independent assurance from internal auditors to regulators and external auditors that the control culture across the organisation is effective in its design and operation.

The 3 Lines Model

The Institute of Internal Auditors issued the improved 3 Lines Models to help organisations achieve their objectives. While all three units of 3LoD are essential for building a cohesive risk management process, the framework isn’t as clear-cut today as it may have been previously. Today, businesses are evolving out of necessity as they respond to new regulations, standards, laws and technology.

This continuous change affects business operations at all levels – Customers demanding real-time interactions, regulators applying increasing levels of scrutiny, and governance stakeholders requiring assurance in this complex and dynamic risk environment. An example would be industry regulations like the Sarbanes-Oxley Act (SOX) which have mandated tighter rules on the levels of controls around financial controls and other operational risk factors.

In response to a shifting landscape, the Institute of Internal Auditors (IIA) developed and issued the improved 3 Lines Model to help organisations identify structures and processes that best assist business leaders achieve their objectives while maintaining strong governance and sound risk management processes. In the improved model, internal audit (IA) would play an active key role in identifying current inefficiencies such that it strategically encourages innovation.

While the Three Lines Model is similar to the familiar 3LoD, it served to provide more clarity to the underlying underpinning principles all while providing a more comprehensive explanation of the roles and responsibilities of the key organisational roles and how they can work together to facilitate strong governance and risk management. The Three Lines Model serves to guide key organisational figures to implement and take actions that align their business objectives with the key interest of various stakeholders.

How can Alyne play a Key Role in Evolving and Strengthening your Organisation’s Risk Management Framework?

Alyne’s digital platform empowers business leaders to gain compliance efficiency through performing a single assessment and evaluating compliance against multiple regulations or standards. Different groups within organisations play a distinct role within the 3 Lines Model, from business units to compliance, audit, and other risk management personnel.

In the recent Alyne platform development, the second line roles are now better supported in all aspects of GRC for their daily work as our digital platform helps them to examine different areas of risk in more granular detail than ever before.

Improve Governance Across Your Enterprise

Alyne has recently released a new functionality called Documents and Document Mappings, which is boosted by Natural Language Processing (NLP) capability to bring transparency and flexibility to regulations. This functionality supports your manual mapping process by intelligently suggesting Controls.

Ensure Continuous Compliance with a Clear Overview

Alyne’s Continuous Controls Monitoring guarantees an appropriate current overview of your organisation’s compliance situation. With this functionality, actors in the 2nd and 3rd lines will now be able to continuously monitor the maturity of Controls across assets and analyse how they have changed over time. This empowers business leaders to gain real-time insights into individual and structural deficits so that they are able to react promptly, if necessary.

Mitigate Risks as They Evolve

The interdisciplinary area of risk management involves all roles of the 3 Line Model. 1st and 2nd Line identify, assess, treat and monitor risks, the 3rd Line keeps a watchful independent eye on the activities. With Alyne, active risk treatment decisions can be made for each risk – Limitation, Transfer, Avoidance and Acceptance can be chosen.

In addition, mitigations and their associated tasks are decoupled for better traceability and tracking in order to facilitate collaboration across the entire organisation, Alyne’s platform also allows tasks to be assigned to respective mitigation owners or anyone who could be responsible.

Get in touch with our team to learn more about the extended functionality of Alyne.

Written in Collaboration by:
Tamara Gurschler and Eunice Cheah