AXVECO performed a short survey among Dutch Financial Institutions to establish whether the three lines of defence model was still viewed as valid and identify implementation challenges.<\/p>\n
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We received a large number of responses (62) from senior risk managers. 40% of respondents represented the banking sector, 24% insurance, 12% asset managers and 24% other (including consultants and regulators). The results are presented in this paper, combined with our knowledge and experience from interactions with senior business stakeholders.<\/p>\n
Risk Governance can be defined as the subset of corporate governance decisions and actions that ensure effective risk management, including organisational structures, policies, processes and decision-making within the area of risk. Article 22 of the European Capital Requirement Directives (CRD 2006\/48\/EC)[i]<\/a> requires, that every credit institution has robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, adequate internal control mechanisms, including sound administrative and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management\u201f.<\/p>\n The most important reference work in the field of Risk Governance is the European Banking Association’s (EBA) “Guidelines on Internal Governance (GL 44)” [ii]<\/a>. These guidelines have been issued by the EBA after a survey conducted in 2009 by the Committee of European Banking Supervisors on the implementation by supervisory authorities and institutions of its Internal Governance Guidelines in response to the issues highlighted by the financial crisis[iii]<\/a>.<\/p>\n
| The three lines of defence model is accepted by the Financial Services industry as a sound practice.<\/strong><\/em><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Risk Governance is the responsibility of the governing bodies of senior management and the Board, who should play an active role in setting the organisation\u2019s objectives and establishing governance structures and processes to manage the risks in achieving the objectives. Organisations should put in place a structure of risk responsibilities throughout the organisation, as a result of which, everybody in the organisation will become aware of their own risk responsibilities and accountabilities and those of others with whom they work.<\/p>\n The EBA GL 44 guidelines, applied by the Dutch National Bank when reviewing governance structures, are consistent with the well-known three lines of defence model. This is a simple model, with each \u201cline\u201d playing a critical role in the governance of the risks the organisation is facing (see figure 1):<\/p>\n
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