Automation in model risk management

The views and opinions expressed in this article are those of the thought leader and not those of CeFPro.

By Julian Horky, Head of Risk Controlling, Berenberg Capital Markets

How has automation in model risk management progressed in the last 5 years?

The advancements in automation were just stunning – not only in model risk management but across all areas. Automation really spread into all aspects of the model life cycle and is used by all lines of defense by now.

Models became a core value-adding function in financial institutions. This rise of models reduced more traditional risks, such as credit risk, market risk etc., but it also went hand in hand with an increase in model risk. As a result, model risk became a fundamental threat to firms. With that, firms that have not realized this as of today are the ones that will struggle to be here tomorrow.

The automation of model risk management processes proved itself a great answer to mitigate this increase of model risk while also decreasing cost. Automation essentially triumphed through all lines of defense. While models and their implementations had been automated for a while, leveraging automation in model development, validation and audit were among the most exciting topics in the last years.