| Top Risks | Mitigating Controls | Design Effectiveness Assessment Steps | Operating Effectiveness Testing Steps |
|---|---|---|---|
| Weak 2nd line oversight / unclear roles | 1. Clearly documented 2nd line mandate 2. Approved organization charts and role definitions 3. Independent risk oversight committee | 1. Review governance framework doc & 2nd line charter 2. Check board/committee minutes approving 2nd line mandate 3. Evaluate whether roles & responsibilities are formally assigned & aligned with policies | 1. Interview key second-line staff on real-life escalations 2. Inspect monthly/quarterly risk oversight reports for clarity and timeliness 3. Verify actual independence in conflict resolutions |
| Inconsistent escalation of significant issues | 1. Formal escalation policy (thresholds, triggers) 2. Mandatory incident reporting matrix | 1. Examine escalation policies, trigger definitions, approval levels 2. Verify threshold logic (e.g., financial impact, reputational severity) | 1. Sample actual incident logs, track whether escalations met policy thresholds 2. Confirm escalation timeframes were met 3. Interview staff on escalation use cases |
| Overlap/gaps between 1st/2nd line responsibilities | 1. RACI matrix clarifying each line’s accountability 2. Periodic review of 1st/2nd line boundaries | 1. Check existence of RACI or similar responsibility matrix 2. Confirm periodic re-validation of 1st vs. 2nd line boundaries | 1. Observe how 1st and 2nd line interact in risk committees or daily processes 2. Verify any boundary confusion was resolved quickly & effectively |
| Compromised independence of 2nd line | 1. Solid reporting line to CRO or Board Risk Committee 2. Independence safeguards (e.g., no direct P&L responsibilities) | 1. Review board-endorsed independence clauses 2. Confirm that 2nd line staff do not carry profit targets or direct operational tasks | 1. Check any examples where 2nd line was pressured to alter findings 2. Interview staff for perceived independence 3. Review any board/committee escalations for independence issues |