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Quantitative Finance · Glossary

What is Three lines of defence?

Definition 26.4 Rates, Credit, XVA and Risk · Chapter 26 — Model Risk and Validation

The three lines of defence assign model risk to the model’s owners and users (first line: development and use), to an independent risk function (second line: validation and oversight) and to internal audit (third line: assurance that the framework works).

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