Request a Brochure

Learn, explore and unleash your inner chef.

For more information, contact:
Melini Hadjitheori
melinih@marcusveanscy.com

What are the latest best practices on model risk management and model governance?

To me the benchmark for model risk management is still the SR 11-7. However the past few years I have experienced a transition from primarily regarding model validation as the control mechanism to mitigate model risk towards a more “full value chain” approach. By this I mean that banks seem to now adopt the SR 11-7 more directly and involving model developers, users, controllers, validators and auditors in the model risk management processes. It is also my impression that the governance and organization of model risk management functions are somehow converging, partly supported by regulators across Europe adopting the SR 11-7 but also through other regulatory guidelines like e.g. the EBA GL44 guideline on internal governance. I think this is a transition that have happened in the US banking industry during the past five years and is now evolving throughout Europe. From having primarily focused on pricing, valuation and risk models, model risk management now seem to cover all types of models, again inspired by the very wide model definition of SR 11-7. This again has strengthened the importance of building model inventories that support identification and categorisation of models as well as a dynamic assessment of inherent model risk and the effectiveness of attending controls. This is in my mind essential in order to get an overview of models and model risk sources and to enable reporting of aggregate model risk to senior management.

What are the validation challenges driven by the regulations?

As already mentioned, although not formally a regulatory requirement in Europe, the SR 11-7 in itself provides plenty of challenges for model risk management over the coming years, including coherent identification and measurement of model risk across all models and ensuring completeness in model inventories. Furthermore, the vast amount of model development in these years related to regulatory initiatives such as FRTB, Initial Margin, IRRBB, Prudent Valuation and the ECB’s TRIM exercise will put pressure on model validation teams. Resources are likely to be stretched by this and that will pose a challenge for e.g. on-going review activities of existing models. In such an environment it will be crucial to be able to enforce strong on-going control and monitoring of model risk and model performance also by model owners themselves and to allocate model validation resources following a risk based approach.

Could you briefly explain the model risk drivers in risk management?

When identifying model risk drivers, I think it is very important to really focus on the model application. I do not believe it makes much sense to discuss model risk for a model in its abstract. Model risks broadly appear in three stages; model design, model implementation and model use. The sources of model risk are quite different in these three stages and require very different measures for mitigation. The specific sources of mode risk in each of these different parts are numerous, very diverse and critically depend on the type of model and the specific application. I think that in general the most significant driver of model risk is over reliance on model outputs and single measures for quantification and mitigation. To more effectively mitigate model risk alternatives must be evaluated on a continuous basis and a range of different model risk measures and controls be put in place.

What would you like to achieve by attending the 9th Annual Pricing Model Validation?

First of all I look forward to a lot of interesting presentations on a quite diverse set of topics. My hope and expectation is to get a lot of different viewpoints and approaches on how to address current and coming challenges from fellow industry practitioners facing similar issues. I find that there is often a very good mixture of regulatory insight, detailed model validation techniques and both principal and practical approaches at these events. And beyond the presentations they also offer excellent opportunities for networking and discussing interesting topics in a more informal setting. This will hopefully provide valuable inspiration for future work. And finally I am happy to see that there is workshop on documentation. I think this is a subject that deserves a lot of attention and where only little guidance is provided by regulation like the SR 11-7.

Ahead of the 9th Annual Pricing Model Validation conference, read here an interview with Mr. Jens Jakob Rasmussen, Director and Head of Model Control & review at Nordea about the best practices on model management and model governance.

About the conference:

This marcus evans event will equip you with the latest know how on current and future regulations, help you implement best practices with optimisation of model risk management, overcome model validation challenges and explore the complexity of XVA and new initial margin models. The 9th Annual Pricing Model Validation conference will take place from the 21st until the 23rd of September 2016 in London, United Kingdom.

About the speaker:

Jens Jakob Rasmussen, Director and Head of Model Control & review at Nordea, holds a MSc in Mathematics and Economics from Aarhus University, Denmark and has almost 20 years’ experience within the baking sector. He has been working previously in Danske Bank in various roles including internal audit and risk management and joined Nordea’s Wholesale Banking division in 2004 and have played a key role in establishing model validation processes for pricing models within the division. Recently he moved to a role as head of Model Control & Review in Nordea’s Group Model Risk Control unit, a recently established centralized organizational unit for model risk control in the bank. His responsibilities include on-going validation of pricing and valuation models across the group.

Challenges and Best Practices on Model Risk Management

An interview with Nordea

Jens Jakob Rasmussen,
Director and Head of Model Control & Review at Nordea

Practical Insights From:

Dr Ebbe Negenman, Head of Regulatory Risk
ABN AMRO
Raphael Albrecht, Head of IRC Methodology
Credit Suisse
Bertrand Hassani, Global Head of Research and Innovation
Banco Santander
Tanveer Bhatti, Managing Director, Global Head of Model Risk Management
Citibank

Previous Attendees Include

ABN AMRO
BAML
Barclays
BNP Paribas
Commerzbank
Credit Agricole
Credit Suisse
Danske Bank
EY
ING Bank
Morgan Stanley
National Australia Bank