A pre-crisis view of model-risk management: Insights from Asia, Europe and North America

Risk Dynamics has been working alongside financial institutions, regulators and supervisors to shape Model Risk Management (MRM) practices for over 15 years. A key part of that role is understanding and tracking trends. Our regular international MRM surveys started in 2010 and provide a long-term perspective on the views and experiences of leading global banks.

Our 2019 survey of 75 financial institutions reveals that, while there are regional differences in maturity of MRM implementation driven in large part by differing levels of regulatory supervision across the world, priorities can be grouped into four broad themes:

• The expanding scope of the MRM function into areas like AI and machine learning
• The ongoing challenge of quantification and reporting
• The changing focus of MRM beyond a narrow remit to address regulatory issues
• A growing need for greater efficiency as organizations bed down their approach.

In addition, wherever a bank is on its MRM journey, it faces the twin challenges of two key enablers: technology and talent. Addressing those will be essential as MRM increasingly takes on a board-level focus.

This article was originally published on McKinsey.com on February 21, 2020, and is reprinted here by permission.