By enhancing MRM framework capabilities—organizations are upgrading validation resources. Risk culture, standards, and procedures rank high on the overall MRM 2.0 agenda.

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Model risk management evolves in response to uncertain times

A primary factor for inventory expansion over the past two years has been the emergence of a range of new use cases, including emerging risks related to cyber, climate, and COVID-19, as well as the redevelopment of some categories to cater to structural market changes. There is also a consensus the validation burden will rise over the next two years, amid higher levels of demand in areas such as climate and AI.

These updated efforts should be built on the pillars of increased efficiency, supported by digitization, a more empowered MRM function, and advancements in the use of AI. Despite all the uncertainties ahead, there is equally as much work as there are tremendous opportunities on the horizon.

This article was originally published on McKinsey.com on March 9, 2022 and is reprinted here by permission.