A response to the PRA’s consultation paper on Model risk management principles for banks

The PRA has drawn heavily on existing the Federal Reserve’s 2011 Model Risk Management Guidance, SR 11-7, but also added expectations about how firms should approach the use of Artificial Intelligence (AI) and Machine Learning (ML) in modelling.

UK Finance has responded to the PRA’s Consultation Paper 6/22 on model risk management, which builds on the September 2021 letter from the regulator which set expectations that firms should improve the models control environment.

We supported the proportionate approach in relation to the implementation of the 5 proposed Principles but were concerned that elements of the draft supervisory statement are expressed in an overly prescriptive way, particularly in relation to the requirement for the board to, in our view, ‘over-engage’ with the model oversight process. We suggested this should be explicitly delegated to an executive of the firm,  but subject to challenge from the appropriate board sub-committee.