Organizations that are run by business line, including risk management and compliance, can miss inherent conflicts of interest between lines of business. Thus, individuals can be motivated to support their line of business without due regard for the increased risk or potential for compliance failure that their actions create in other parts of the organization.
In today’s regulatory environment, the focus is increasingly on supervision of the full enterprise. An example is the Federal Reserve’s umbrella supervision of financial and bank holding companies in the United States. Another is the consolidated supervision of financial institutions operating in the European Union resulting from implementation of the new Basel II capital accord.