Skip to content

FRM Part II · FRM Exam Part II · Supervisory Guidance on Model Risk Management

A bank maintains a model inventory. Which feature best reflects the supervisory expectation for the inventory?

The inventory should be comprehensive: all models in use or development, including vendor models, with purpose, owner, limitations, and validation status, kept up to date. Restricting it to high-risk models or fragmenting it across business lines prevents an aggregate view of model risk.

  1. AIt lists all models in use or under development, with purpose, owner, limitations, and validation status, and is updated regularlyCorrect
  2. BIt includes only models classified as high risk, to limit administrative burden
  3. CIt is maintained separately by each business line with its own format and no central oversight
  4. DIt records only vendor models because internal models are documented in code

Explanation

Guidance expects a comprehensive inventory covering all models, including those under development, vendor and in-use models, with information on purpose, restrictions, owner, and validation dates. Limiting it to high-risk models or leaving it fragmented prevents the firm from assessing aggregate model risk.

Did you get it right without looking?

One question tells you little. A timed set on Supervisory Guidance on Model Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Supervisory Guidance on Model Risk ManagementFree diagnostic mock

More Supervisory Guidance on Model Risk Management questions