The Office of the Superintendent of Financial Institutions Canada (OSFI) has released a draft guideline for Enterprise-Wide Model Risk Management, and is inviting stakeholders to comment on the draft before the end of February.
“With the evolution of banking markets and innovations in banking products, the use of internal models by financial institutions has increased,” said Assistant Superintendent Carolyn Rogers. “As Canadian deposit-taking institutions become more reliant on models, a consistent standard and sound practices for managing and controlling the use of models are needed.”
From OSFI’s web site:
This proposed new guideline aims to establish a common baseline understanding of OSFI’s expectations of federally regulated deposit-taking institutions around the use of models enterprise-wide. It outlines prudent practices for internal model development, review, approval, use and modification and is applicable to all models that have a material impact on the risk profile of an institution.
The draft guideline takes an enterprise-wide view on model risk, emphasizing that the principles-based guidance be appropriately applied across the entire spectrum of models used by institutions for risk management purposes. The draft guideline outlines OSFI’s expectations for institutions to establish sound policies and practices for an enterprise-wide model risk management framework.
The draft guideline distinguishes between OSFI’s expectations for those institutions that are approved to use internal models for regulatory capital purposes and those that are not. The guidance also considers specific challenges that the usage of models pose for small and medium sized institutions.
The proposed guideline is scheduled to come into force on November 1, 2017.
Iceberg recommends the RSA Archer Model Risk Management (MRM) solution to provide:
- A centralized system to track and monitor business risk models
- Visibility across the enterprise to the health and status of your risk model inventory
- Consistent and repeatable processes to capture and track model changes across the enterprise
- Processes for model validation and testing
- Clear reporting and metric tracking
- Effective controls to prevent unauthorized model changes
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