Global Model Practice Survey 2014
Validation at Risk
Models are at the heart of financial institutions. They are powerful tools in assessing risk and improving decision making. Their widespread use combined with increasing complexity of models give rise to a new type of risk that financial institutions face: model risk. If managed inappropriately, models can be a source of distress that, in some cases, can and have proven to be severe.
Different regulatory regimes recognized the importance of model risk and imposed stricter requirements on model development, model validation, model use and model governance. On the other hand, financial institutions become more aware of the potential magnitude of model related losses and are taking proactive steps to mitigate it.
Model Validation provides an objective review to model development, hence addressing the issue of model risk. Furthermore, Model Validation plays an important role in assessing the compliance of models to internal and external regulations. Accordingly, the role of the Model Validation function has become more and more prominent within financial institutions.
Between the second half of 2013 and the beginning of 2014, Deloitte Global Financial Service Industry conducted Global Model Practice Survey (GMPS) and released Global Model Practice Survey 2014 – Validation at Risk. The survey results will provide you with key information on the state of Model Validation practice within financial institutions.