Ways to Improve Your First Line of Defense in a 3LoD Model
Market shifts and tumultuous risk events in recent years have encouraged companies to increase their focus on enterprise risk management (ERM). Risk cultures have reorganized around adopting the Three Lines of Defense (3LoD) model of ERM.
The 3LoD model is advocated by CFPB, FFIEC, OCC and others. The framework breaks the first line of defense (FLoD) into risk owners, the second line of defense (SLoD) into compliance review and the third line of defense (TLoD) into independent monitors who audit the first two lines of defense. The TLoD is well understood. However, there are challenges with the first two.
How can you understand and optimize the FLoD to reap the rewards of the 3LoD model? Use Procipient® to improve controls and processes within the FLoD and create harmony between the first and second lines.
Improve Controls and Process
The FLoD is front-line and mid-line management. They can institute corrective actions to address process and control deficiencies in the systems and processes they own and manage every day. This guides internal policies and procedures and increases the likelihood of achieving company goals and objectives.
Unfortunately, defining the FLoD can be a challenge. There is sometimes a lack of clarity in roles, requirements and responsibilities.
Operation managers need to take ownership of their risks. Then the FLoD can be improved by:
Understanding your company’s risk appetite, value drivers, strategic objectives and key risks
Documenting risk owner assurance functions, mandates, activities and scopes of work
Obtaining an understanding of the C-suite and board’s requirements for risk oversight and reporting
Creating a risk coverage map and mapping risks to processes and controls
Comparing controls and processes for consistency and completeness against risks
These best practices serve to encourage collaboration between the three lines of defense. Linking the FLoD and SLoD, in particular, requires managers to take on risks and auditors to focus on governance structures and strategic value.
Procipient® Facilitates Communication and Teamwork
Procipient® is a single-system ERM solution founded upon the 3LoD model. The ERM-GRC solution can assist your ERM program in assessing and reporting risk across controls, applications and processes.
Procipient® features simple configurations within the structured framework that align inherent risk, probabilistic risk, control efficacy and residual risk assessments within your business. These assessments can be defined against the policies and procedures specific to individuals and departments.
You can facilitate communication and teamwork with the regulators and auditors in the other lines of defense by proving the effectiveness of the FLoD. Demonstrate this with Procipient®’s assessment and documentation functionalities, including those related to sub-processes, applications/systems and third-party providers.
The 3LoD model provides a powerful framework to enhance communication regarding risk and control across an enterprise. For the second and third lines to thrive, however, the FLoD needs special attention.
Request a demo today to learn how Procipient® can simplify the implementation and maintenance of the 3LoD model for your company’s ERM program.
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