WASHINGTON—The Federal Deposit Insurance Corporation, along with the Office of the Comptroller of the Currency and the Federal Reserve have issued revised guidance on model risk management for banking organizations.
The agencies said the updated guidance clarifies that model risk management frameworks should be tailored to the size, complexity and overall model risk profile of each institution.
According to the regulators, the guidance is intended to support banks by outlining sound principles for effective model risk management. It highlights key considerations, including:
- Factors that influence model risk and the characteristics of effective model development and use
- Expectations for model validation and ongoing monitoring
- Governance practices and internal controls related to models
Additional Risks Addressed
The guidance also addresses risks tied to vendor and other third-party models, including the need for appropriate validation of such products, the agencies said.
Regulators emphasized that the revised guidance does not establish enforceable standards or prescriptive requirements. Non-compliance with the guidance, by itself, will not result in supervisory criticism, according to the agencies.
In connection with the update, the FDIC said it is rescinding prior guidance, including FIL-22-2017, which addressed the adoption of supervisory guidance on model risk management, and FIL-27-2021, which covered model risk management for systems supporting Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control compliance.
