CIMCON Software - What is SR 11-7 Guidance on Model Risk Management

Explore CIMCON's comprehensive guide on SR11 7 guidance for effective model risk management. Understand regulatory requirements and best practices. Enhance your financial institution's risk management strategy today.

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1. What is SR 11-7 Guidance on Model Risk Management?

2. What is SR 11-7?
❑ManyregardtheBoardofGovernorsofUSFederalReserveSystem’s,SupervisoryletterentitledSupervisory
GuidanceonModelRiskManagement,SR11-7asaclearguideforimplementinganeffectivemodelrisk
managementframework.Accordingtothisdocument:
❑"Bankingorganizationsshouldbeattentivetothepossibleadverseconsequences(includingfinancial
loss)ofdecisionsbasedonmodelsthatareincorrectormisused,andshouldaddressthose
consequencesthroughactivemodelriskmanagement....(SR11-7)describesindetailthekeyaspects
ofaneffectivemodelriskmanagementframework,includingrobustmodeldevelopment,
implementation,anduse;effectivevalidation;andsoundgovernance,policies,andcontrols."

3. Reducing Model Risk
❑With the increasing focus on governance and qualitative data, model risk management has become an
important issue for banks; one that requires significant time and resources. Since many banks rely on
end user computing applications such as spreadsheets to create the models or feed data into the
model, managing spreadsheet risk is critical to reducing and managing model risk.
❑Our software gives you all of the controls that regulators require. It also greatly reduces operational risk
from spreadsheets & other EUCs on an ongoing basis.

4. Inventory
❑Create a complete and accurate automated inventory of all EUC files, including spreadsheet models in the
company
Auditing
❑Cell level audit trail of spreadsheets sharing file activity including sheet and cell location, timestamp, user, type
of change, old value, new value, and change comments
❑Structure level audit trail of Access databases
❑Immediate email alerts on critical changes
❑Periodic email summaries on significant changes

5. Model Analysis
❑Analyze spreadsheets to uncover formula issues and inconsistencies
❑Cell Analysis to view cell or formatting issues
❑VBA Code Analysis to find keywords and identify areas lacking in best practices
❑File, sheet, and cell-level data lineage maps

6. Version Controls
❑Manual or scheduled version creation to store important versions of spreadsheets
❑Version comparison, archiving
❑Tracking of ad-hoc versioning methods
Sign Offs
❑Line item approval of audit trail with name of approver and date of approval
❑Structured workflows with defined tasks and owners

7. What else do you need to know?
❑Since the 2007-09 financial crisis, regulators have added a series of regulations, in addition to SR 11-7, to test
the reliability of models.
❑Regulations such as, most recently, the Bank of England’s Supervisory Statement 1/23 (SS 1/23) as well as long-
standing regulations such as Basel II & III, ICAAP, Supervisory Capital Assessment Program (SCAP),
Comprehensive Capital Analysis and Review (CCAR), Dodd-Frank Act Stress Tests (DFAST), and the European
Central Bank's (ECU) Comprehensive Assessment, as well as others, use models to create what-if scenarios to
test capital sufficiency through stress testing.

8. What else do you need to know?
❑Supervisors provide regulatory guidance on modeling and whether it is the Bank for International Settlements,
the Federal Reserve Board of Governors, the European Central Bank, the Bank of England, or the Prudential
Regulation Authority (PRA), regulators expect:
✓"transparent and repeatable" process
✓"completeness and accuracy of information"
✓internal controls around data integrity and models
❑With our software, our mission is to add controls and insight that empower our customers instead of restrict
them and aid our customers in being compliant with the wide and ever-expanding regulatory landscape.

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