Financial institutions are urged to organise risk management according to the Three Lines of Defence (3LoD) model.
“Firms often adopt the three lines of defence model when designing their risk management framework. The business areas act as the first line, independent risk management functions form the second, and internal audit provides the third line of defence”, said the Bank of England.
The Basel Committee, the Bank of England, and the European Banking Authority (EBA) are among the many regulators that expect businesses to manage risks based on this model.
Today’s regulatory environment has become more complex, and more data-driven than ever before. New frameworks such as the EU’s Digital Operational Resilience Act (DORA), the Basel principles on internal audit, and The Institute of Internal Auditors (IIA) 2020 “Three Lines Model” requires collaboration, and technology enablement across all three lines.
The EBA, in its report on money laundering and terrorist financing risks, highlighted the growing concern of weak control structures, “the poor quality of controls – particularly among newly authorised entities – is insufficient to mitigate high inherent risk levels and may create vulnerabilities that could increase inherent risk levels in the medium to long run.”
When the first line (business operations) and the second line (compliance and risk functions) fail to establish robust controls and monitoring processes, it leaves the third line (audit) to identify systemic weaknesses which can undermine operational resilience and lead to breaches.
Three lines of defence at financial organisations can no longer function independently in an ever-evolving regulatory and geopolitical landscape. Regulators have made it clear that governance needs to be smarter and interconnected.
Instead, teams (business, compliance and audit) across the three lines need to work together harmoniously.
This is where FinregE comes in. We help firms move from siloed controls and static reporting to a more automated, data-driven, and connected approach to regulatory compliance.
Understanding the three lines of defence
First line: business and operations
The first line consists of business units and operations teams, which are the closest to day-to-day risks. These teams tend to design products, onboard customers, approve transactions, manage vendors, and deal with incidents.
Typical risks:
- Conduct and market abuse
- AML/CFT and sanctions
- Credit, liquidity, and trading risk
- Operational and third-party risk (DORA aligned)
Example controls:
- Customer due diligence, onboarding risk scoring, sanctions screening
- Product governance, suitability testing, conflict-of-interest logging
- Front-office reconciliations and maker–checker approvals
- Incident management and vendor oversight
How FinregE supports the first line:
FinregE simplifies compliance by incorporating regulatory intelligence directly into operational workflows:
- Targeted regulatory alerts tailored by jurisdiction, product, or risk type.
- Impact assessment workflows that let users assign actions, capture evidence, and track completion.
- Automated audit trails that document every decision, owner, and closure date.
Second line: risk and compliance teams
The second line provides independent oversight of the business. It sets risk appetite, develops policies, and challenges first-line effectiveness.
Typical risks:
- Regulatory non-compliance
- Policy misalignment with external obligations
- Incomplete horizon scanning or weak control coverage
Example controls:
- Regulatory obligation registers and policy mapping
- Risk Control Self-Assessments (RCSAs)
- Key Risk Indicators (KRIs) and threshold monitoring
- Second-line QA and thematic reviews
How FinregE enhances oversight:
FinregE transforms second-line oversight into data-driven intelligence:
- Digital rulebooks: One searchable source of truth for regulations across jurisdictions.
- AI RIG (Regulatory Insights Generator): Provide summaries of regulatory updates, extract obligations, and recommend actions to enable faster impact analysis.
- RIGMAPS: Automatically maps external rules to internal policies and controls, highlighting what’s missing.
- Dashboards and workflows: Compliance teams can see what is pending, who is responsible, and where delays are happening.
Third line: internal audit teams
Internal audit provides independent assurance to the Board that risk and control frameworks are effective. The Basel Committee and DORA require audit functions to remain independent, resourced, and capable of testing ICT and operational resilience.
Typical risks:
- Weak evidence and traceability
- Inconsistent testing or “audit fatigue”
- Gaps between regulation, policy, and control execution
Example controls:
- Audit plans aligned with key risks and regulatory focus areas
- Control design and operating effectiveness testing
- Validation of remediation and management actions
How FinregE strengthens audit assurance:
- Shared libraries and logs: Audit can see the same control data and evidence that the first- and second lines use.
- Automatic audit trails: Every assessment and change is logged with context.
- One-and-done testing: Evidence collected once can support testing across all lines, cutting duplication.
- Traceability: Auditors can follow a rule from source to control to test outcome in a few clicks.
FinregE empowers collaboration across all three lines
The strength of a modern 3LoD model lies in how well its lines collaborate.
FinregE operationalises that by connecting the business, compliance, and audit teams within one platform.
Together, this model brings every line of defence into a shared, real-time governance environment, ensuring:
- The first line contributes operational insight,
- The second line maintains oversight and control, and
- The third line gains transparent, verifiable evidence for assurance.
This is how FinregE turns the 3LoD model into a living system of accountability rather than a static framework.
Building effective and efficient lines of defence
Modernising the model is not just about software; it is about structure and discipline. Here’s how firms can strengthen both effectiveness (doing the right things) and efficiency (doing things right), with FinregE supporting each step:
- Start with clear roles. Define who owns, who challenges, and who assures. Document it and make sure job descriptions reflect it.
- Use one risk and control language. FinregE’s taxonomies make sure risks, controls, and obligations line up across teams and systems.
- Keep one control library. First-line tests feed into second-line QA and third-line audit. No duplication, no confusion.
- Link risk appetite to metrics. Use key risk indicators (KRIs) with clear thresholds. FinregE’s dashboards turn data into early warning signals.
- Automate monitoring. Continuous control monitoring flags exceptions in real time, feeding them straight into workflows.
- Map regulation to controls. RIGMAPS connects each rule to the right policy or control, so nothing gets missed.
- Unify issue management. One workflow for QA findings, audit actions, and incidents—so ownership is always clear.
- Track data lineage. Every KRI or model input is traceable back to its source, meeting Basel and audit expectations.
- Build culture and skills. Train each line for its role and reward timely escalation. FinregE’s user structure reinforces that accountability.
Resilience, accountability, and intelligence are more important to the development of the Three Lines of Defence than compliance.
This balance between responsible innovation and strong control is made possible by FinregE.
FinregE turns the 3LoD model into a dynamic, data-driven, cooperative, and regulator-ready system of governance by combining business, risk, and audit into a unified regulatory intelligence platform.
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