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Model Risk Management

The jointly issued supervisory guidance on model risk management from the Office of the Comptroller of the Currency and the Fed is a timely reminder of the risks posed by models to the overall risk management framework.  This guidance – OCC 2011-12 – significantly increases the importance and scope of model governance over the OCC 200-16 bulletin. 

Given the widespread use of models at financial institutions for purposes ranging from financial reporting to risk management, a robust model governance program is required to manage model risk.

Navigant’s risk management consultants help financial institutions develop robust model risk management frameworks that help address compliance demands and enhance decision-making.  We offer a broad range of model risk management services to banks, asset managers, insurance companies, and governmental institutions.  Our experienced risk management professionals – quantitative specialists, former bankers and regulators, technology architects – bring a thoughtful approach to model risk management and regulatory compliance strategies to help establish a disciplined management of model risk.

 

Navigant’s comprehensive model risk management services include:

  • Independent model validations supporting a wide range of credit, market and operations risk applications
  • Model documentation and business requirements
  • Design and development of model governance programs including organizational design, policies and procedures, and resource planning
  • Customized model development
  • Model implementation, automated solutions and user acceptance testing
  • Scenario development and stress testing
  • Quantitative accounting solutions including FAS114 and SOP03-3 solutions

CASE STUDY:

In conjunction with the major re-statement of a real estate finance entity’s financial statements, including the fair values of financial instruments, Navigant established an overall Fair Value and Model Governance process for the entity. As part of this engagement, our professionals identified the appropriate internal members of management that should participate in this key risk committee, developed a charter and established detailed working procedures including review and reporting protocols. The result of this project was the successful review and sign-off of all fair value models including reporting key aspects to the Board of Directors and auditor sign-off.

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