Will regulatory scrutiny of model risk management intensify?

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As proposals for new financial regulations make the rounds of the G-20 summit in London this week, recent US congressional hearings already indicate an increasing likelihood of greater scrutiny even without regulatory reform. One area receiving particular attention is model risk management. In testimony before a Senate Banking subcommittee hearing on regulators' oversight of risk management systems at large financial institutions, an official from the United States Government Accountability Office cited numerous examples of regulators who failed to capture or mitigate specific weaknesses in institutions' model risk management systems prior to the current crisis.

As lawmakers pressure regulators, institutions should prepare for tougher examinations of their risk management systems. Richard R. Pace of the FS Regulatory Practice provides his perspective on preparing for more intense regulation of institutions' model risk management programs in this edition of PwC's FS Regulatory Briefs.