The Office of the Superintendent of Financial Institutions Canada (OSFI) on Wednesday released for comment a draft guideline that aims to enhance banks’ management of the risks posed by their reliance on internal models.
The draft guideline sets out the federal banking regulator’s views on the use of enterprise-wide risk management models. It establishes prudent practices for developing, reviewing, using and revising internal models that have a material impact on banks’ risk profiles.
“With the evolution of banking markets and innovations in banking products, the use of internal models by financial institutions has increased,” says OSFI assistant superintendent, Carolyn Rogers, in a statement. “As Canadian deposit-taking institutions become more reliant on models, a consistent standard and sound practices for managing and controlling the use of models are needed.”
The guideline outlines OSFI’s expectations for banks to establish sound policies and practices for an enterprise-wide model risk management framework, and emphasizes that the principles-based guidance should be applied “across the entire spectrum of models used by institutions for risk management purposes.”
The draft guideline is out for comment until Feb. 28, 2017, and OSFI expects it to come into force on Nov. 1, 2017.
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