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FRM Part II · FRM Exam Part II · Case Study: Model Risk and Model Validation

According to SR 11-7, who holds ultimate responsibility for setting the firm's model risk appetite and ensuring a sound model risk management framework is in place?

The board of directors and senior management are ultimately responsible. SR 11-7 expects them to establish the model risk management framework, set the firm's model risk appetite, approve policies, and ensure adequate resources and independence for validation, while developers and users carry out specific duties.

  1. AThe board of directors and senior managementCorrect
  2. BThe model developers
  3. CThe external auditors
  4. DThe model vendors

Explanation

SR 11-7 assigns the board and senior management responsibility for establishing the model risk framework, setting the risk appetite, and ensuring adequate resources and policies. Developers, vendors and auditors have roles but not ultimate accountability.

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