Financial Institutions and other businesses use various models to assist them in analyzing and managing various risks related to their operations. The term model refers to any technology or quantitative method/process/system/approach that automates certain processes by applying statistical, economic, financial, or mathematical theories, techniques, and assumptions for processing inputted data to provide outputs required by the business concerned. The use of models invariably presents model risk, which is the potential risk related to decisions that are based on fundamental errors in the model or its incorrect model outputs and reports.
Regulatory guidelines describe Model validation as “set of processes and activities intended to verify that models are performing as expected, in line with their design objectives and business uses”.
RGS ensures and effective validation of all model components model components (inputs, processing/model parameters/performance, outputs, and reports) to determine whether models are sound and performing appropriately, identifying any potential limitations due to the model/related assumptions. The validation performed by RGS covers all risks associated with models – model design and performance risk, model input (data integrity and mapping) risk, model outputs.
By working with RGS, you will have a trusted advisor and partner who can help you proactively identify risks related to the models used at your institution and help you mitigate these, as you continue to focus on the growth and profitability of your business.