Model Validation is becoming increasingly important as Banks and Financial companies address regulatory oversight as well as Sarbanes-Oxley Certification (SOx) requirements. Firms are now genuinely engaged in creating a controlled environment and Enterprise Risk Management groups are playing a key role in Model Validation efforts.
The increased use of models exposes an organization to some level of model risk. Model errors may contribute to incorrect valuations and lead to inappropriate financial entries. To address this, and to master the SOx 404 certification process, each firm needs to develop and manage their own validation program.
Model Validation and independent review is vital for Enterprise, CRO and CFO stakeholders. Model risk can be reduced substantially through rigorous model validation and a formal internal “program” that maintains balance across analytical departments.
The Office of the Comptroller of the Currency (OCC), through the issuance of Bulletin 2000-16, has established guidance for a sound basic validation program. While this provides a framework, it does not address recent expectations of leading audit firms. Let our experience with program development and interaction with regulators and auditors lead you to sound, defensible practices. We are uniquely qualified to offer a more manageable solution.
The Model Validation solution includes the following components that produce an assertive, rigorous and defensible framework:
- Independent Model Validation
- Independent review of technical models and methodology
- Comprehensive quantitative finance and statistical capabilities
- Assess strengths/weakness and address gaps before audit scrutiny
- Model Validation program design and development
- Establish an enterprise program from concept to implementation
- Develop and coordinate a model validation policy
- Perform model reviews and assess model controls
- OCC/OTS compliance, SOx and external audit preparation
- OCC Bulletin 2000-16 on regulatory guidance and scope
- Sarbanes-Oxley Section 404 certification process
- Promote coordinated solution for risk stakeholders
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