Crossing the lines a human approach to improving the effectiveness of the three lines model in practice

Abstract

Purpose

Financial services firms have a significant societal responsibility to prevent issues. The three lines model helps them do that though faces challenges in its effectiveness. This paper aims to offer a behavioural perspective on these challenges and practical solutions to help improve the model and herewith better prevent issues.

Design/methodology/approach

The authors detail key behavioural pitfalls and underlying psychological mechanisms that hinder the effectiveness of the model. The authors illustrate these with examples from the corporate practice, alluding to the behavioural patterns and drivers identified in the academic and consultancy work. The authors conclude with offering practical solutions how to enhance the effectiveness of the model.

Findings

The authors discuss common ineffective intergroup behaviours between the controllers (here: internal audit) and the controlled (here: the audited business or 2nd line functions): the controllers responding to issues with increased scrutiny; the controlled dismissing the feedback and challenging the issues raised; and the controlled and the controller competing for power. The root causes of these ineffective intergroup behaviours include: psychological defence mechanisms, social categorisation and collective beliefs about intrusiveness. The offered solutions range from actions the controllers can take, actions the controlled can take and actions both can take to improve the effectiveness of the model in practice.

Originality/value

The authors argue that the behavioural perspective on the effectiveness of the model is a blind spot and largely omitted from organisations’ agendas. This paper adds this behavioural perspective to help organisations improve the effectiveness of the model.

Citation

Fenelon, M., van Doorn, J. and Scholten, W. (2024), "Crossing the lines a human approach to improving the effectiveness of the three lines model in practice", Journal of Financial Regulation and Compliance, Vol. 32 No. 5, pp. 620-632. https://doi.org/10.1108/JFRC-09-2023-0150