modellriskpolicy

modellriskpolicy is a formal organizational framework that governs how an institution manages model risk. It defines the principles and requirements for identifying, assessing, validating, monitoring, and mitigating models used in decision making, risk management, finance, and regulatory reporting. The policy applies to all materially influential models, whether developed in-house or sourced from vendors, and to any tool or dashboard that relies on quantitative or statistical modeling.

Models are categorized by materiality, complexity, and impact on risk or capital. The policy requires an inventory of models, assignment of model owners, and a classification scheme that determines validation and approval requirements, frequency of review, and escalation paths for material changes or breaches of performance standards.

Governance bodies include senior management, a model risk committee, and an independent validation function. The policy defines responsibilities for model owners, model developers, data stewards, and validators. It sets approval thresholds for development, deployment, and changes, and requires formal sign-off before use in production.

Models follow a lifecycle from design and development to testing, calibration, backtesting, and ongoing monitoring. Validation is independent of development and assesses data quality, methodological soundness, conceptual soundness, and replicability. Documentation standards require model specifications, data lineage, assumptions, limitations, and performance benchmarks.

The policy mandates ongoing monitoring of model performance, periodic reviews, and governance reporting. It requires remediation plans for identified deficiencies, tracking of model risk exposure, and escalation to risk committees. It aligns with applicable regulations and standards, and is subject to internal and external audit.