Written on: 8 June 2023
  • Financial Markets Standards Board (“FMSB”) Members representing communities active in global wholesale financial markets review the 3 Lines Model.
  • FMSB issues a Spotlight Review and Risk Register for practical application and benchmarking.
  • The aim is to assist firms in assessing aspects of their holistic risk management frameworks using the 3 Lines Model as a lens.
  • The work will help the industry to reduce incidents of siloed knowledge, fudged accountability, duplication, technical problems and misconduct; it will be of interest to market practitioners, Board members and executives, and those working in the field of risk.

8 June 2023 –  Financial Markets Standards Board today published a Spotlight Review and Risk Register on the 3 Lines Model. Initially known as the 3 Lines of Defence, this approach to risk management is widely deployed in financial services.

Rather than being considered an organisational structure, the FMSB Review calls for the Model to be repositioned more beneficially as a lens through which to examine key aspects of risk management frameworks: effective process design, checks and balances, efficiency and effectiveness vis-a-vis outcomes and staff behaviour. Overseen by Boards, the 3 Lines comprise:

  • 1st Line: Management and business generators (CEO, traders, sales and origination, etc.)
  • 2nd Line: Risk and Compliance teams
  • 3rd Line: Internal Audit

In late 2022, under the leadership of Standard Chartered’s Tracey McDermott, CBE, Group Head Conduct, Financial Crime and Compliance, market practitioners led by Bank of America’s Alan Leigh, MD, Global Banking & Markets, created a Financial Market Standards Board Working Group to look in-depth at the Model, identify frequently arising risks and how to address them practically.

The 3 Lines Model poorly applied can contribute to difficulties such as siloed knowledge, disputed accountability, excessive duplication and protracted technical issues. Using the lens to assess risk enables an evaluation of the activities people perform wherever they sit in an organisation, including the sort of misbehaviour that derails well-designed and governed policies and processes.

FMSB’s Member subject matter experts developed this paper to help the financial industry understand how the Model can evolve and be implemented most successfully. It contains a Risk Register which lists hot spots to help practitioners consider how best to approach the problems.

FMSB CEO Myles McGuinness said: “The power of FMSB is illustrated in the collective knowledge-share among Members who review foundational concepts such as the 3 Lines Model and refine them to meet the unique challenges faced in today’s global wholesale markets. I would like to thank Members and stakeholders who contributed to this publication.”

Bank of America’s Alan Leigh, who led the work with one of FMSB Secretariat’s Senior Technical Specialists, Ted MacDonald, said: “It’s useful to view the Model as a lens. It is a framework for assessing organisational infrastructure around risk of all kinds, the relevant checks and balances as well as the approach to assurance. No organisational unit is immune to risks or mistakes. This lens can be of use in assessing individual functions as well as the organisation as a whole.”

Standard Chartered’s Tracey McDermott, who is Chair of FMSB’s Conduct & Ethics Committee, said: “As the 3 Lines Model continues to develop and evolve it is important to take a step back and consider what is working and what can be improved. This Spotlight Review provides a snapshot of how FMSB Members are thinking about these issues and some practical suggestions about risks to watch out for.”

PowerPoint Presentation

ENDS

Media contacts

FMSB
Vic Silverman
+447787 083681
vic.silverman@fmsb.com

 

Notes to Editors

  • A not-for-profit, privately-owned company, Financial Markets Standards Board (FMSB) is the leading market-led, global standards body for fair and effective wholesale financial markets.
  • Created following the Fair and Effective Markets Review (FEMR) in 2015, FMSB brings together its Members – practitioners – from buy-side, sell-side, corporate issuer and infrastructure provider organisations to develop Standards, Statements of Good Practice and Spotlight Reviews.
  • Its mission is to improve the transparency, fairness and effectiveness of global wholesale financial markets, bridging the ‘void’ between high-level regulatory principles and low-level operational rules.
  • See all FMSB Members. Access all FMSB industry Standards and publications.

 

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