Automated Model Documentation with the Yields MRM platform

Financial institutions around the world are strengthening their?model governance?to manage their exposure to?model risk. This often translates into extensive and transparent?model documentation?requirements. Model documentation provides model users, validation teams, and regulators with a thorough understanding of how models work and how they should be used. In practice, each model should have the appropriate documentation that explains the model’s purpose, intended design, complexity, limitations and assumptions, and historical observed performance for stakeholders to make informed and timely decisions.

Despite the emphasis regulators and senior management teams place on adopting and implementing a thorough documentation process throughout the model lifecycle, many model development and validation teams struggle to keep documentation up to date and sufficiently detailed, typically due to a lack of resources.??

Ideally, the process of?generating model documentation?should be centrally managed and automated. However, given that most of the time only generic (internal) guidelines (e.g. via templates) on acceptable formats and content of the documentation exists, organizations tend to adopt a decentralized documentation approach that often leads to inconsistencies and poor quality.

Incomplete documentation is considered one of the largest barriers to respecting validation timelines. While model documentation is critical for effective model risk management, the process has evolved into a time-consuming and cumbersome process that is challenging to standardize.

Our technologies,?Chiron Enterprise?&?Chiron App, address these industry challenges and include functionalities to automate and standardize the model documentation process.

Chiron Enterprises standardizes the structure and the layout of all model documentation, while Chiron App automatically populates the documentation templates as part of the execution of quantitative tests in the tool.

By?automating the model documentation process, we free up time for model development teams to focus on the development of new models and the maintenance of existing ones. Furthermore, the improved consistency and accuracy of the documentation enable model validation teams to perform their independent review with greater efficiency.

Chiron Enterprise’s Model Documentation Builder

Chiron Enterprise’s new?model documentation builder?is equipped with the following features to ease and standardize model documentation:

1. Unlike manual documentation, Chiron Enterprise allows you to build documents by creating templates using placeholders that allow users for instance to dynamically embed info such as ‘upstream and downstream dependencies, test results, etc.’ This enables all model users to select content instead of writing it, eliminating any risk arising from omittance or human error.?
2. Customizable templates to fit unique business & regulatory requirements so you can always stay compliant and control the quality of your model documentation process.?
3. Pre-designed and populated templates are included in the module to help you build a strong foundation for your model documentation process.
4. Chiron Enterprise’s Model Documentation Builder is model agnostic.

Integration with Chiron App’s Automation Engine

Through the native integration of Chiron Enterprise with Chiron App, we combine standardization and automation capabilities to enable financial institutions to bring their model documentation process to a higher level, thereby reducing the opportunity for the model risk to arise.

Benefits of the automated documentation capabilities in the Chiron App:

1. Automated population of documentation templates: by automatically populating the model documentation templates, we reduce the model documentation process which could take several months, down to seconds. Model development teams can focus again on what they do best: developing new models.
2. Increased efficiency and consistency.?As model documentation is automatically created as part of model testing, model developers no longer need to write content from scratch. This way, you won’t have to scramble to verify if all information within your documentation is free from human error. Furthermore, the consistency and quality of the documentation are guaranteed and ensure a streamlined model review process. Simplifying and automating the model documentation process minimizes errors from the potential omission of data/information.

About the Author

Efrem Bonfiglioli has several years of experience in model risk management. He developed models across a wide range of applications both in the corporate world and for financial services applications. In recent years, Efrem has provided advice on cutting-edge model risk management solutions both within top-tier banks and for his financial services clients across the globe.