To ensure al lnternal Rating Based (IRB) models are adequate and address regulatory requirements, IRB models are subject to a regular validation cycle. With emphasis given to a thorough model backtesting and benchmarking, annual validations are commonly supplemented by the results of model monitoring and the use of external data sources too.
Disclaimer: Data, charts and commentary displayed herein are for information purposes only and do not provide any consulting advice. No information provided in this documentation shall give rise to any liability of Auriscon HK Ltd and Auriscon Ltd.
Our Aproach
is to support or independently carry out validation activities, both according to the timetable of the institutions validaton framwork or ad-hoc based on moment and circumstances. We assist in defining and performing various statistical testing and analyses covering validaiton of risk parameter PD, LGD, EAD and Credit Portfolio models.
Planning & Execution
We support the planning and executing of Model Risk reviewing and audit examinations including Data Governance, Credit Risk and Traded Risk.
Specialisation
Given our specialization in Credit and Model Risk, we can suport with relevant contributions. We are a specialist provider in the field and draw insight from hands-on audit experience.
Detailed and Risk-Based Approach
Our consuiltancy ams to identify latent and emerging risks to higlight detrimental impacts in relation to the validaton subject. Our validation contribution incorporates statistical testing in support of benchmarking and backtesting.
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Causes for Model Risk
| Wrong Model Use | Wrong model usage leading to shortfall in governance. |
| Model Limitations | Model design limitations due to unsuitable methodologies and mismatched assumptions leading to unsuitable model outputs. |
| Data Limitations | Lack of data quallity leading to calibration bias. |
| Machine Learning | Lack of transparency of risk driver used in black-box methods lead to interpretation gaps and heightened Model Risk.. |
Mapping of Asset Class and Risk Areas to Regulations
Regulators have confirmed that financial institutions must implement a Model Risk Management (MRM) framework. This includes setting up an adequate governance of Models with policy for model life cycle and a periodical follow-up with reviewing and assessments.
