Operational risk and the three lines of defence in UK financial institutions: is three really the magic number?

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Author
Mabwe, Kumbirai
Ring, Patrick John
Webb, Robert
Date
2017-02-14Acceptance date
2017
Type
Article
Publisher
Incisive Media
ISSN
1744-6740
1755-2710 (online)
Metadata
Show full item recordAbstract
Interest in financial services firms developing and implementing robust systems and structures to manage operational risk has been growing. While there now appears to be some consensus in terms of definitions, quantification and modeling, firms are struggling with the qualitative side of operational risk management (ORM). This is particularly the case for financial institutions’ operational risk governance, where the three lines of defence model has become standardized. At the same time, corporate scandals post-financial crisis continue to indicate deficiencies in operational risk governance. Our paper examines the three lines of defence in the context of ORM in UK financial institutions. It focuses on roles and responsibilities and then analyzes the effectiveness of the traditional three lines of defence model. We find a lack of common understanding of the lines of defence in financial institutions, which leads to the duplication of roles and gaps in coverage. This is concerning for the industry, the economy and regulators.
Journal/conference proceeding
Journal of Operational Risk;
Citation
Mabwee, K., Ring, P. and Webb, R. (2017) 'Operational risk and the three lines of defence in the UK financial institutions: Is three really the magic number?', Journal of Operational Risk, 12(1), pp.53-69
Description
Article published in Journal of Operational Risk available at https://doi.org/10.21314/JOP.2017.187
Sponsorship
Cardiff Metropolitan University (Grant ID: Cardiff Metropolian (Internal))
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