The Reserve Bank of India (RBI) imposed 353 penalties amounting to USD 6.23 million in the last fiscal year, for non-compliance with statutory provisions. This sharp increase highlights the growing need for organizations to manage compliance more effectively. The Three Lines of Defence (3LoD) model offers a structured approach by clearly defining roles across operational management, compliance, and internal audit. When tailored to an organization’s specific risk environment and supported by regular training, the model helps build stronger governance, reduce risk, and stay prepared for regulatory challenges.
Understanding the three lines of defence
The Three Lines of Defence model is a foundational framework that helps organizations identify, manage, and mitigate risks by defining clear roles and responsibilities. It addresses common challenges like unmanaged risks and gaps in oversight by dividing the risk management into:
- First line – Operations Management
- Second line – Risk Management and Compliance Oversight
- Third line – Internal Audit
The first line consists of operational teams directly involved in day-to-day activities such as product development, customer interactions, and service delivery. These teams are responsible for implementing internal controls and managing risks as part of their routine operations. By embedding risk awareness into daily tasks, they can detect and respond to issues early.
The second line includes specialized teams responsible for risk management and compliance. They design frameworks, monitor compliance, and guide the business in managing regulatory and operational risks. They act as a support system for the first line while maintaining oversight.
The third line consists of independent auditors who provide independent assurance. Their role is to assess the overall effectiveness of the risk management framework and control processes across the first and second lines. By offering an independent view, they help ensure that risks are being managed appropriately and that governance structures are working effectively.
The role of compliance in the second line
The second line plays a crucial role in supporting and overseeing the first line. This is where compliance functions operate, helping the organization stay aligned with laws, regulations, and internal policies. Compliance teams develop policies and frameworks, monitor regulatory changes, provide advice and training, and review controls and processes.
An effective second line not only supports the first line but also challenges it when necessary, ensuring that risks are properly managed. This dual role of advisory and oversight makes it a key contributor to organizational resilience and governance.
Collaboration across the lines
Effective risk management depends on strong collaboration between the three lines of defence. While each line has a distinct role, their success relies on how well they communicate, coordinate, and support one another.
Compliance teams in the second line often act as a bridge, translating regulatory requirements into practical guidance for operational teams, and ensuring that internal audit receives accurate and timely information. This collaboration helps close gaps, reduce duplication of effort, and improve overall governance.
How compliance solution providers strengthen collaboration?
While internal collaboration forms the backbone of effective risk management, external compliance solution providers play a pivotal role in enhancing and sustaining these efforts.
- Support first line-functions in implementing effective controls and understanding regulatory expectations.
- Advice and guide second line teams in building robust compliance frameworks and monitoring mechanisms.
- Collaborate with internal audit to ensure findings are addressed and improvements are sustained.
- Stay ahead of regulatory changes and help organizations adapt quickly to evolving compliance requirements.
- Promote integrated assurance by coordinating efforts across all three lines to reduce duplication and improve efficiency.
Way Forward
The Three Lines of Defence model has evolved into more collaborative and flexible approach to risk and compliance. Now referred to as the Three Lines Model, it emphasizes shared responsibility, strategic alignment, and stronger governance. The use of technology, such as automation and real-time analysis, is helping each line work more efficiently and respond to risks faster.
By moving away from rigid structures and focusing on coordination, organizations can tailor the model to fit their needs while maintaining clear accountability. This shift supports better decision-making and builds a stronger foundation for managing risk in today’s dynamic environment.