Model Validation is a top concern of Compliance Officers as regulatory scrutiny has put Model Governance into the spotlight, requiring them to take accountability for model accuracy and performance. With the introduction of NY DFS 504 regulation and the ongoing discussion of the OCC Model Governance guidelines, banks have been under pressure to ensure that they understand their models. In addition, banks must be able to present sufficient documentation to demonstrate their model design, theory, accuracy, and logic; showing the intended use and applicability of each model.

Why Perform Regular External Model Validations

1. Model Validation helps financial institutions with timely identification of potential regulatory gaps. It prepares them to mitigate those risks with corrective actions by uncovering shortfalls/limitations in their existing compliance models.
2. Often, financial institutions struggle to identify the measures necessary to validate the effectiveness of their methodologies, workflows, controls, model performance, alert disposition process, and adequacy/consistency of documentation throughout the compliance program.
3. Having a Model Validation performed by an external entity provides an unbiased, critiqued insights into the institution’s compliance program.

View Matrix-IFS 5-step, best practice approach in the short video below, that includes:

• Governance, Policies, and Controls Review 
  
• Data Assessment 
  
• Conceptual Soundness of Design 
  
• Design Implementation Review 
  
• Output Performance Assessment