OSFI Guideline E-23 for Model Risk Management

This whitepaper outlines the OSFI's Guideline E-23, which establishes expectations for Model Risk Management (MRM) in federally regulated financial institutions (FRFIs) in Canada. The guideline emphasizes the importance of governance, validation, data integrity, and ongoing monitoring to mitigate risks associated with financial models. It addresses compliance challenges such as resource constraints and AI model risks while presenting best practices for effective MRM frameworks. Key components of E-23 include model governance, inventory management, independent validation, and continuous monitoring of model performance. The document details the regulatory expectations for FRFIs, including the necessity of maintaining a comprehensive model inventory and implementing strong governance structures. It also discusses the role of rigorous model validation and testing in ensuring model reliability and compliance with regulatory standards. By adhering to E-23, financial institutions can enhance their risk management frameworks and operational resilience in a complex financial environment.