PwC has conducted this global survey focussed on Model Risk Management (MRM) during January and February 2022. There were 32 respondents representing 32 financial institutions in total. Ten out of these were based in Western Europe and America, nine in Asia, seven in CEE and six in other regions. The survey has covered the range of financial institutions from small (with total assets below USD 10 bln.) to large (with total assets above USD 100 bln.). Apart from total assets, we also categorised the financial institutions based on the number of risk-relevant models. The survey has covered financial institutions with a very low number of models (0–20), as well as financial institutions with more than 100 models and those in between.
It seems there is no stability within the environment in which banks operate, run their businesses and from the perimeter of a risk manager in the area of estimation and forecasting of the bank‘s risks. Banks are constantly reviewing and testing their mathematical models, broadening their scope of use and adapting to new requirements.
Quite soon after banks implemented IFRS9 and related models became reasonably stable and reliable, the COVID-19 pandemic tested the flexibility of their frameworks to incorporate unprecedented shocks in their portfolios' behavior. Regulatory models have recently been finishing a transformation process imposed by the EBA guidelines; but before all the related changes are finally approved and implemented, a new set of complex statistical models aimed at incorporating ESG components needs to enter into the backlog of every risk manager.
With the increasing complexity and overall number of mathematical models in place, financial institutions across the globe are being challenged and need to adjust their approach to Model Risk Management (MRM) adequately.
With increasing costs of manpower, insufficient capacities of modelling specialists, institutions must push themselves towards automation and digitisation. A proper MRM framework and related technology solutions to empower it start to play an even greater role than in the past.
All of the above led us to perform a survey across financial institutions globally, specifically focussed on MRM and the relevant technology solutions tools in order to provide mainly answers to the following:
We believe you will also find this report insightful and inspirational in terms of how you can possibly leverage MRM in your organisation, and we would like to thank all the participants in this survey for their time and valuable answers.