The views and opinions expressed in this article are those of the thought leader as an individual, and are not attributed to CeFPro or any particular organization.
By Abhisekh Adukia, Model Risk Director, Alliance Bernstein
Why is an integrated model risk management program important?
Thank you for providing me an opportunity to share my views on model risk management. For asset managers, models are an integral part of their investment processes. Regardless of the type of investment strategy, product offerings or the size of asset manager, models are used as an important source of information for portfolio managers to make investment decisions.
If we think the integration of model risk program from COSO (Committee of Sponsoring Organization) lens, there are 5 key components: Risk Assessment, Control Activities, Control Environment, Monitoring and Reporting. To succeed in implementing this framework, I think the model risk mandate needs a cultural shift and acceptance from all stakeholders (Board, Executive and Senior Leadership, Model Developers, and IT Teams). Model developers and IT Teams need to perceive model risk program has a value-add to their development and implementation activities, and not just be viewed as a compliance function.
A combination of emotional intelligence and technical skills are necessary for a model risk program to be successful. The Model Risk Team must have these personality traits and must develop trust and respect by working closely and patiently with the Quants and IT Teams and this process takes some time.
