Summary
This white paper discusses model risk management (MRM) in the financial sector, emphasizing its critical role in ensuring the reliability of quantitative models used for risk assessment and portfolio management. As models become increasingly complex, particularly with the integration of artificial intelligence and machine learning, MRM faces new challenges such as model interpretation and regulatory compliance. The document outlines the traditional and modern approaches to MRM, detailing the importance of a structured framework that includes processes for assessing, mitigating, and monitoring risks associated with model use. It also highlights the regulatory landscape, including guidance from U.S. and international agencies, and the consequences of inadequate MRM practices. Furthermore, the paper introduces the Domino Governance product as a solution designed to enhance MRM capabilities, streamline regulatory reporting, and foster innovation while maintaining compliance. The need for effective MRM practices is underscored by historical examples of model failures and the evolving challenges posed by new technologies.
