The Federal Deposit Insurance Corporation, together with the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System, issued revised model risk management guidance on Apr. 17.
The updated guidance is intended to help banking organizations manage risks related to their use of models by outlining sound principles for effective oversight and control. The agencies said that model risk management should be adjusted according to a bank’s size, complexity, and specific risk profile.
According to the announcement, the revised document discusses factors influencing model risk as well as features important for developing and using models effectively. It also covers validation processes, ongoing monitoring, governance structures, and internal controls. In addition, it addresses considerations relevant to vendor or third-party products—including how such products should be validated by banks.
The agencies clarified that this new guidance does not impose enforceable standards or prescriptive requirements. They said that non-compliance with these principles will not result in supervisory criticism from regulators.
With this release, the FDIC announced it is rescinding two previous documents: FIL-22-2017 regarding supervisory guidance on model risk management and FIL-27-2021 concerning Bank Secrecy Act compliance for models supporting anti-money laundering efforts.
