Model Risk Management

The stakes in managing model risk have never been higher. With digitization and automation, more models are being integrated into business processes, exposing institutions to greater model risk and consequent operational losses. The promise and wider application of models have brought into focus the need for an efficient Model Risk Management function, to ensure the development and validation of high-quality models across the whole organization—eventually beyond risk itself.

Supervisors and regulators across the world have decided that strict controls were needed and began applying specific requirements for model risk management on banks and insurers. Regulators now require that decision makers understand the limitations of the models and avoid using them in ways inconsistent with the original intent. They also require that model risk be identified, mapped, tested, and reviewed. 

Model risk is assessed as a material risk to capital, and institutions are asked to quantify it accordingly. If an institution is unable to calculate capital needs for a specific risk, then a comprehensible lump-sum buffer must be fixed.

Tєcsilon can help you build and evolve a systematically value-based Model Risk Management practice:

• Model Documentation
• Model Validation
• Model Annual Review
• Model Performance Monitoring
• Model Stress Testing
• Model Audit 
• Remediation programs 
• SR 11-7 Compliance