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Effective Model
Validation
Strategies for effective and independent challenge in
internal model validation
internal model validation
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Content
Banks that decide and get approval to use internal models need to invest in developing and maintaining high quality models. They need to have sound internal validation and oversight processes in place.
As part of the general review phase of the Targeted Review of Internal Models (TRIM), the ECB has seen to emphasize and strengthen the role of the internal model validation function. The validation of internal models is a key component of Model Risk Management.
The Model Validation function presents a number of specific challenges:
- how to maintain independence from model development functions and the Credit Risk Control Unit?
- …while at the same time ensuring that weaknesses are addressed effectively?
- how to identify material versus less material regulatory compliance issues on technical subjects?
- how to address structural weaknesses in the internal model development process and model governance framework?
- how to motivate and retain senior experts?
- what are common pitfalls in the relation between credit risk control unit, model validation and audit?
Learning Goals
After this module, you will be able to
- Identify the key elements of effective and independent challenge
- Recognize trade-offs and risks in day-to-day model validation practice
- Understand the role of model validation in relation to the three lines of defense against model risk
Target Audience
The course module is intended for
- Senior Model Validators
- Model Risk Management
Prerequisites
The material will be taught in English.
Participants are advised to come equipped with basic understanding of:
- (Credit) risk management
- Regulation of internal models
Schedule
The module will be taught over 2 sessions of each 4 hours. The track schedule will be planned in coordination with the client based on the selection of modules.
Example case studies
For this module, examples of case studies are
- Present and discuss simulated validations of internal model concepts
- Identify relevant regulation for a presented case
- Guided debates on model validation challenges
Please Contact us for details and options.