Models permeate the financial services industry. Model risk management (MRM) has evolved in parallel, but not always at the same pace.
April 2011 was a watershed moment for model risk management. That month, the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC) published the Supervisory Guidance for Model Risk Management (MRM Guidance), which was adopted, verbatim, in 2017 by the Federal Deposit Insurance Corporation (FDIC). This guidance provided a structure for firms to review their existing practices and to establish comprehensive model risk management frameworks. Firms of all sizes have made material advances in model control practices since that date.
To assess the current state of the industry, the Risk Management Association conducted the Survey of Model Risk Management, Vendor Model Validation, and Third-Party Model Risk Management (the survey) during the fourth quarter of 2021. Sixty-two firms participated, a respondent pool that represents a cross-section of the industry along the dimensions of asset size and primary prudential regulator