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.
Effective Date: January 01, 2019
Keywords: Americas, Canada, Banking, Enterprise Wide Risk Management, Guideline E-23, OSFI
Previous ArticleResponse of ESMA to EC Consultation on Fintech
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations.
EBA published a report on convergence of supervisory practices in 2019.
EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.