Three Lines of Defence Practice Benchmark
- 11 September 2020
Are you an ORX Member? Log in here to read the 3LOD Practice Benchmark report for free (or, check if your firm is an ORX member)
The ORX Practice Benchmark on the three lines of defence (3LOD) model is now available. The benchmark is available for free to ORX members, and for just £1,000 to financial organisations who aren't members of ORX.
What's included in the 3LOD Practice Benchmark?
- An organisation-level benchmark report showing where your practice sits against the other participants
- Option to include all lines of defence in your organisation to the benchmark to provide an internal benchmark which will help you understand how the different lines in your own institution think the 3LOD model is operating. You'll also see your results for each line against those of the other participants, providing you with a further external benchmark of your practice.
- A top-level report exploring the overall findings from our survey on the 3LOD model and implementation
- Case studies highlighting the benefits and challenges of introducing and embedding a Line 1.5 (included in the main report)
Enhancing the 3LOD model
The three lines of defence (3LOD) model should fundamentally contribute and support better risk management. However, it is generally recognised that it needs to be enhanced further to help offer an effective roadmap of key decision-making within complex firms, providing clarity around questions of responsibility and accountability to underpin better risk management and control activities.
Since its introduction within the financial services industry over 20 years ago, the 3LOD model has been discussed, adapted and challenged. Despite some reservations over its effectiveness as a framework to support risk management behaviours, it is widely used amongst financial institutions.
Many organisations continue to struggle with fully embedding the 3LOD model which can cause uncertainty over roles and responsibilities, duplication of work, and a perceived lack of mutual appreciation between the different lines. Organisations are often encumbered with a model which does not sufficiently support positive risk management behaviours or encourage enough collaboration between the lines. The 3LOD model was set up to support better risk management but it needs to still deliver further on this.
The practice vs the theory
In view of this, in 2020 ORX carried out a Practice Benchmark to look at practice versus theory. This benchmark explores what is actually happening in practice within the industry compared to the theory, and helps operational risk teams understand what can be improved and where the industry is moving to in enhancing its practice.
In order to gain a holistic view of the 3LOD model, we surveyed 53 global institution’s second line operational risk teams as well as over 110 individuals in 30 global institutions from the first line, line 1.5 and the third line. Each participant was provided with an individual benchmark showing where their practice sits and an overall report identifying and analysing industry trends.
4 ways to further embed 3LOD
Overall, we identified four key ways that financial organisations can improve the embedding of the 3LOD model:
- Individual accountability and incentives
- Culture and communication
- Active risk management
Request your own 3LOD Practice Benchmark report
All of our Practice Benchmarks are available for free to our members and cost just £1,000 for non-members (only financial organisations are able to take part).
If you buy the 3LOD Practice Benchmark report, you'll receive an organisation-level benchmark report showing where your practice sits against the other participants. You'll also have the option to extend the benchmark report to include the other lines of defence at your organisation (1st, 2nd, 3rd and 1.5 if applicable).
This will allow you to see how your 3LOD model compares to the industry, but also give you an internal benchmark showing how the different lines perceive the 3LOD model to be implemented at your organisation, allowing you to identify areas where there are divergences in understanding.
In addition, you'll receive a 38-page report exploring the overall findings from our survey on the 3LOD model and implementation, covering:
- Opportunities to further embed the 3LOD model
- Benefits and challenges of the 3LOD model in practice
- Roles and responsibilities
- Adapting the model
- Embedding the model
- Case studies and more
About ORX Practice Benchmarks
ORX Practice Benchmarks explore specific areas of operational and non-financial risk practice in detail. They help you understand what is standard practice across the industry, in which areas you are ahead of your peers and, crucially, where you could improve.
We've already conducted a number of practice benchmarks. Whether you're a member of ORX or not, you can request an individual report for any of the benchmarks we've carried out at any time.