PRA'S 4 KEY PRINCIPLES OF MODEL RISK MANAGEMENT

A practitioner's guide to low cost compliance

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The regulatory scrutiny being applied to Model Risk Management (MRM) is intensifying and spreading globally. In the US, the Fed set out MRM principles in 2011. The European Central Bank (ECB) recently kicked off a Targeted Review of Internal Models (TRIM) for banks in countries with Euro.

UK banks and insurers have been waiting for similar regulatory guidance from the Bank of England/Prudential Regulatory Authority (PRA). This arrived on 27 March 2017 when PRA issued a guidance letter as part of its 2017 stress testing instructions.

The PRA’s letter may only cover stress testing models and has no regulatory weight. However it is the PRA’s first public MRM guidance and is likely to form the basis of future, much broader MRM regulation in the UK in coming months.

New regulation is likely to place direct responsibility for group wide MRM onto a senior director, affecting all major UK banks and insurers. The objective of this whitepaper is to provide this named director and his or her senior management team with practical guidance for setting up an MRM operating model that is both compliant and low cost.

This paper discusses the importance of having a compliant strategy in place and aims to provide practical guidance for setting up a Model Risk Management solution that is both compliant and low cost.

The experiences of banks in countries already subject to MRM regualtion has shown that compliance creates a significant burden and additional costs for an organisation.

This practical guide will equip with you best practice tips and advice on how to achieve low cost, compliant MRM processes as well as improvements in the efficiency of the underlying model development process.

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The regulatory scrutiny being applied to Model Risk Management (MRM) is intensifying and spreading globally. In the US, the Fed set out MRM principles in 2011. The European Central Bank (ECB) recently kicked off a Targeted Review of Internal Models (TRIM) for banks in countries with Euro.

UK banks and insurers have been waiting for similar regulatory guidance from the Bank of England/Prudential Regulatory Authority (PRA). This arrived on 27 March 2017 when PRA issued a guidance letter as part of its 2017 stress testing instructions.

The PRA’s letter may only cover stress testing models and has no regulatory weight. However it is the PRA’s first public MRM guidance and is likely to form the basis of future, much broader MRM regulation in the UK in coming months.

New regulation is likely to place direct responsibility for group wide MRM onto a senior director, affecting all major UK banks and insurers. The objective of this whitepaper is to provide this named director and his or her senior management team with practical guidance for setting up an MRM operating model that is both compliant and low cost.

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PRA'S 4 KEY PRINCIPLES OF MODEL RISK MANAGEMENT

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