SS3/18: Model Risk Management For Stress Testing - ClusterSeven

SS3/18: Model Risk Management

Model Risk Management for Stress Testing

SS3/18 is the UK’s Prudential Regulatory Authority (PRA) standard for Model Risk Management for Stress Testing. The framework extends the principles of stress testing to all UK banks and Building Societies that were not covered by the PRA’s earlier stress testing requirements, which covered the very largest institutions. The aim is to enhance the resilience of UK institutions to economic shocks and encourage a consistent approach to stress testing to address systemic risk.

The standard sets out the principles that institutions need to adopt, and demonstrate, when developing their stress test models.  It encompasses:

  • Model definition
  • Inventory management
  • Model governance
  • Risk management
  • Model validation and review.

It came into effect in June 2018.

The Challenge of SS3/18

Spreadsheets feature significantly in stress testing frameworks in institutions of all sizes, where their power, flexibility and ubiquity mean they can be used to consolidate source data, develop the models, manage the model inventory, or provide the ‘final mile’ reporting.

The challenge for institutions is that the power and flexibility of spreadsheets means that they lack the management and change controls that provide the transparency and auditability that SS3/18 requires. This lack of control can expose an institution to spreadsheet risk that can create errors that can comprise data quality, model design, or reports for example that provide poor quality stress test results for management and regulators, as well as breaching SS3/18.

Attestation management will also be a key challenge for institutions, as they will need to demonstrate that their systems, processes and documentation fully support SS3/18, efficiently and accurately.

The Solution

ClusterSeven’s solutions deliver powerful capabilities that allows institutions covered by SS3/18 to implement capabilities that help assure:

  • Model governance & oversight
  • Data collection & data quality assurance
  • Model validation
  • Model decommissioning
  • Model re-certification
  • Auditable and transparent reporting
  • Comprehensive attestation management

Our solutions allow institutions the use the power and flexibility of their existing IT environment, to meet the demands of SS3/18.