Apparity Updates: August 2022

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Why Your MRM Efforts Will Fail

Regulatory Compliance

Models typically represent one of the most important tools that management rely on to make critical business decisions and ensure the company is performing as expected. Many companies have already established a model risk management (MRM) framework.

The framework serves as a foundation to establish controls and reduce operational risk over your most important models. The MRM program may also register and track critical models and will factor in regulatory compliance requirements.?

However, this alone is not enough to classify your MRM program as reliable.

Models are often built and maintained in end user computing (EUC) applications. These tools, such as Excel spreadsheets, often have inadequate built-in MRM controls, which increase the risk of an error causing significant downstream effects.

MRM Failures

By failing to address these challenges, you may encounter a range of deficiencies and/or failures.

• Changes to high-risk models will be undetectable
• High-risk models will not be identified until an audit or review
• High-risk models that have not been validated will be in production use
• Model data lineage cannot be evidenced for compliance requirements
• Data governance efforts will be less effective
• Policies and procedures will quickly become outdated with the release of new regulatory mandates
• Deficient model validation practices will result in controls failure and/or a data governance breach
• Inadequate controls will lead to misstatements, causing financial, reputational, and other losses

With so many points of failure, how can you overcome these MRM operational challenges?

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Since the early 2010’s, there has been an influx of new model risk mandates issued around the world. How can your organization stay ahead of the constantly evolving regulatory landscape?

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After developing an MRM framework, what’s next? Learn how to develop a successful and sustainable model validation & remediation program.?

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