Model risk management

Article

Model risk management

Building supervisory confidence

Models serve many important strategic purposes for financial services firms, and in many jurisdictions are relied upon in the regulatory framework. However, they can pose a number of risks for both financial services firms and the regulators monitoring them. In a policy environment that is broadly supportive of model use, how can firms build supervisory confidence in their models amid increasing regulatory scrutiny?

In this report, we discuss the current trends in the supervision of model risk management in financial services firms, drawing on our views and experiences to outline how financial services firms can apply practical model risk management to build supervisory confidence in models and modelling.

We specifically draw on the experience and expertise of Deloitte model risk management teams worldwide, working in those areas that are of greatest current concern to supervisors across financial services.

Firms that implement model risk management frameworks that satisfy both regulatory requirements and supervisors’ practical concerns, and operate at a commercially-viable cost, are, in our view, well-positioned to find a supportive policy environment for the use of models.

Firms need to demonstrate to supervisors that model risk is being managed across all stages of the model lifecycle. Overall, we expect supervisors to attach most importance to the board’s oversight and challenge of the model, to effective, independent model validation, and to the organisational status of model risk management which enables these. 

Model risk management

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Core to supervisors’ concerns are:

How Deloitte can help

With a team of more than 700 professionals covering all aspects of model risk, Deloitte has implemented leading practices at organisations across financial services and developed and implemented technological solutions to help clients achieve scale and sustainability across all components of their model risk management frameworks, while complying with the strictest regulatory rules.

About the APAC Centre for Regulatory Strategy

The Deloitte Centre for Regulatory Strategy is a source of critical insight and advice, designed to help clients to anticipate change and respond with confidence to the strategic and aggregate impact of national and international regulatory policy.

Through regular dialogue with financial institutions, trade associations, and other regulatory stakeholders, the Centre helps Deloitte’s clients stay ahead of evolving regulatory trends and understand what actions can be taken. With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s network of experienced risk, regulatory, and industry professionals - including a deep roster of former regulators, industry specialists, and business advisers - with a rich understanding of the impact of regulations on business models and strategy.

Published: September 2018

 

Centre for Regulatory Strategy EMEA
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