Glossary
What is Model risk?
Regulation
Model risk is the exposure to poor decisions caused by flaws in the design, data or use of a scoring model or credit policy. It is mitigated through governance: independent validation, versioning, performance monitoring and full traceability of every change.
How it is governed
Controlling model risk requires knowing which policy version decided each case, who approved it and on what data. Without traceability there is no way to validate a model or to answer a regulator.
FAQ
Common questions
Why does it matter to banks?+
Credit risk regulatory frameworks require models to be validated and documented. Policy versioning and decision traceability are the evidence that this governance is actually in place.
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