Model Risk Management

Reducing and Monitoring the Risk Associated with Model Use

Model use affects the fortunes of firms in many ways, some of them unexpected. The risks can impact on the calculation of P&L movements, for example, or valuations, or the assessment of capital adequacy. There are also complex regulations – the 2011 OCC model governance guidelines. Fintegral helps clients ensure both best practice and compliance with the regulatory regime.

Our Approach

We subcategorise Model Risk into quantifiable and unquantifiable components. We address the quantifiable risks with our risk quantification reports, which deploy an arsenal of methods to estimate statistical and assumption risk. Control reviews then target the unquantifiable risk by applying a standardised list of required controls based on the model’s individual elements.

To facilitate these processes Fintegral consultants have developed a control tool which automates the creation of model maps, control reviews and model risk quantifications.

Our Experience

  • Setting up a central model oversight function and implementation of a framework to assess model risk for a global tier 1 bank in Europe
  • Performance of control reviews across a wide range of risk models including credit portfolio models, and models for liquidity, haircuts, stress and attrition
  • Development and implementation of a governance framework and review of an economic capital and loan pricing tool for an international top-10 bank in Europe
  • Model documentation reviews of pricing and other models for a major US bank, to ensure CCAR compliance
  • 2016 benchmark survey of Model Risk Management practices among members of the International Association of Credit Portfolio Managers (IACPM)

Read more – Fintegral Case Study