OSFI Issues Final Guideline on Enterprise-Wide Model Risk Management
OSFI released the final version of the Guideline E-23 on Enterprise-Wide Model Risk Management. The guideline establishes OSFI’s expectations for institutions in managing and controlling the use of models, whether for regulatory capital determination, internal risk management, valuation/pricing, business decision-making, or stress testing. Standardized institutions, as defined in the guideline, will have until January 01, 2019 to become compliant with this guideline. All other institutions (that is, internal-models-approved institutions) are expected to comply with the guideline by November 01, 2017.
The guideline has been revised to reflect comments received during the public consultation, which ended on February 28, 2017. Deposit-taking institutions are increasingly relying on models for not only regulatory capital determination but also for valuation and business decision-making purposes. Guideline E-23 aims to provide institutions with comprehensive and clear guidance and common standards for enterprise-wide model risk management. It also outlines prudent practices for internal model development, review, approval, use, and modification. This guideline applies to all models that have a material impact on the risk profile of an institution; for example, models used for regulatory capital determination, internal risk management, valuation/pricing, business decision-making, or stress testing purposes.
This consultation had included targeted discussions with several foreign bank branches on the proposed scope of coverage. These discussions have led OSFI to exclude foreign bank branches from the scope of the guideline, since OSFI believes that it has the capacity to assess model risk management of these institutions within existing supervisory processes. A footnote to the guideline clarifies that the Principal Officer of a foreign bank branch is accountable for ensuring there are appropriate risk controls over model risk, where material. Annex 1 summarizes comments of substance that were received from stakeholders and explains how they have been addressed.
Related Links
Guideline Impact Analysis Statement
Effective Date: January 01, 2019
Keywords: Americas, Canada, Banking, Enterprise Wide Risk Management, Guideline E-23, OSFI
Previous Article
EC Vice President on Pan European Covered Bonds FrameworkRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
