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

Which element is most essential for a bank's model inventory to support sound governance under supervisory guidance?

A comprehensive inventory of all models in use, including vendor models, recording purpose, owner, limitations, validation status and dependencies. This lets the bank aggregate model risk and track validation. Restricting it to in-house or front-office-rated high-risk models would leave gaps in oversight.

  1. AA comprehensive list of models in use, including purpose, owner, limitations, validation status and dependenciesCorrect
  2. BOnly models rated as high risk by the front office
  3. CA record of share prices used as model inputs
  4. DA list of models developed in-house, excluding vendor models

Explanation

A comprehensive inventory covers all models in use or under development, including vendor models, with purpose, owner, restrictions, validation dates and interdependencies. Limiting it to high-risk or in-house models would leave model risk unmeasured and unmanaged.

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