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In CP 6/22 the PRA is proposing a supervisory expectation that firms should meet five model risk management (MRM) principles which it considers key in establishing an effective MRM framework. These will apply to all PRA regulated firms, large and small.
The PRA expects firms' use of models to continue to increase as they extend the use of models, for instance to quantify of the financial risks associated with climate change and the introduction of AI and ML techniques.
It has identified evidence of poor model risk management in areas such as modelling of IRB credit risk and ECL accounting and that improvements are required.
The PRA proposes five principles that firms should take into account as they establish an effective MRM framework:
The PRA is proposing that then requirements should be implemented proportionately 12 months after the publication of the finalised Supervisory Statement. By this time the PRA expects that all firms applying the proposed principles will have undertaken an initial self-assessment and prepared remediation plans to address any shortcomings.
This UK Finance seminar, held jointly with KPMG and the PRA and including a panel of member firms will explore the PRA’s proposed requirements, their scope and the implementation challenges for smaller firms.
Director, Prudential Policy, UK Finance
Simon leads the Prudential Capital and Risk team at UK Finance, which focuses on influencing the implementation reforms to capital and liquidity requi...
Simon leads the Prudential Capital and Risk team at UK Finance, which focuses on influencing the implementation reforms to capital and liquidity requirements in the UK. He leads UK Finance's work on the senior managers' and certification regime (SMCR), which seeks to improve bank-wide governance and culture, and has extensive knowledge of prudential regulatory architecture.
He is also interested in operational resilience and different types of bank capital and funding instruments such as bail-inable and covered bonds and securitisation structures. His banking background is in fixed income sales, trading and origination as well as energy and aerospace project finance. He is liveryman of the Worshipful Company of International Bankers and is a former member of the European Banking Authority's Banking Stakeholder Group.
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