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

Which practice best reflects supervisory expectations when a vendor updates a model the bank uses in production?

A vendor update should be handled as a model change under the bank's own governance, with assessment, testing and revalidation proportionate to materiality. The bank cannot rely on the vendor's statement that the change is minor, since accountability for model use stays with the bank.

  1. AAdopt the update immediately because the vendor is responsible for its accuracy
  2. BWait until the next annual review before considering the change
  3. CTreat the update as a model change requiring assessment, testing and, where material, revalidation before or promptly after implementationCorrect
  4. DSkip validation if the vendor states the change is minor

Explanation

Vendor changes can alter model behaviour and so must go through the bank's change management and validation process proportionate to materiality. Vendor assurances do not remove the bank's accountability. Delaying until the annual review leaves unvalidated changes in production.

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