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

Which item should a bank's model inventory include for a vendor-supplied model, according to supervisory guidance?

A vendor model belongs in the inventory like any other model, recorded with its purpose, usage, limitations, owner, and validation and monitoring status. Supervisory guidance covers all models in use, whether built in-house or supplied by third parties.

  1. AOnly models developed in-house, as vendor models fall under procurement records
  2. BOnly vendor models rated high risk by the vendor
  3. CThe vendor model together with its purpose, usage, limitations, and validation and monitoring status, like any other modelCorrect
  4. DOnly the vendor's contact details and the licence expiry date

Explanation

The inventory should cover all models in use, including vendor and other third-party models, with information on purpose, restrictions, owner and validation status. Excluding them would leave unmanaged model risk, and vendor-assigned ratings are not the basis for inclusion.

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