Model Risk Governance – You Need a Wider Lens
How can technology support model risk governance? Take a wider look at model governance...
Model governance is an essential element of managing the risks involved in the application of models at financial institutions, whether it be for managing the business, portfolio management, stress testing or their numerous other uses.
SR 11-7, the US regulatory model governance standard, provides a framework for effective model governance, focusing on the separation of model development and use, from model validation, the application of a company-wide model risk management initiatives, as well as full model inventory management and documentation.
Despite many institutions using corporate IT applications for modelling, spreadsheets continue in widespread use in modelling teams, because of their power, flexibility and convenience. The absence of comprehensive change control in spreadsheets means that managing models, which involve spreadsheets, under SR 11-7, presents a significant challenge for institutions, in terms of compliance. It also exposes them to spreadsheet risk issues that could have a material impact on the business.
Effective model governance requires a detailed understanding of which spreadsheets are utilized in the modelling process, and how they are integrated with other spreadsheets and external data sources. Modelling teams also need to possess the ability to identify, monitor and audit changes, stale or missing data, or erroneous entries that could compromise the quality, accuracy and integrity of the results.
ClusterSeven’s solutions allow institutions covered by SR 11 7 to implement capabilities that help assure:
Our solutions enable institutions to use the power and flexibility of their existing IT environment, to meet the demands of SR 11-7.