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PRA’s 4 Key Principles of Model Risk Management

The regulatory scrutiny being applied to Model Risk Management (MRM) is intensifying and spreading globally:

  • 2011 – in the US, the Fed set out MRM principles
  • 2016 – the European Central Bank (ECB) kicked off a Targeted Review of Internal Models (TRIM) for banks in countries with the Euro currency
  • 2017 – PRA issued consultation paper CP26/17 “Model risk management principles for stress testing”

The consultation paper may only cover stress testing models; however, it is the PRA’s first public MRM guidance and is likely to form the basis of future, much broader MRM regulation in the UK.

New regulation is likely to place direct responsibility for group wide MRM onto a senior director, affecting all major UK banks and insurers.

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