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

Under supervisory guidance, a bank's model outputs are routinely overridden by loan officers. What is the most appropriate management response?

Overrides should be tracked, analyzed and reported, because frequent overriding signals possible model weaknesses or misuse. Guidance values informed judgment but expects documentation; banning judgment outright or deleting logs would reduce, not improve, model governance and learning.

  1. ATrack and analyze overrides as a source of information about model weaknesses and report themCorrect
  2. BProhibit all human judgment, even where model inputs are known to be stale
  3. CStop reviewing the model since users know best
  4. DDelete override logs to avoid supervisory scrutiny

Explanation

Guidance treats frequent overrides as a signal that the model may be flawed or misused, so they should be logged, analyzed and reported. A blanket ban ignores legitimate judgment, and removing logs or reviews weakens governance.

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