Model inventory and validation represent the main pillars of the MRM to assure good model quality and trustworthy outcomes.
Consistent standards for model planning, development, and validation allow institutions to develop better models in a more efficient way with fewer resources and in less time.
Cost-effective approach and high standards are essential features of any good MRM moving forward for three main reasons. The first is due to the increasing leverage on the models for the tactical and strategic choices of the financial institution. The second reason is the increasing regulatory scrutiny on the quality of the models and of the overall underlying process. Thirdly, the exponential growing importance of artificial intelligence/ ML and big data to rethink/ reshape current processes, products, and services require an even more robust MRM to deliver with confidence and speed in the current dynamic environment.
Overall the model risk process has made good progress in the last years. Of course, the challenges described above, and the goal of a more robust and comprehensive MRM require further efforts. Establishing high standards across the financial institution for the MRM process as data management, data development and validation represent an essential step to increase transparency of the modelling process, keeping pace with the regulatory requirements and manage model risk on a 360° basis.
