Governance of Behavioural Models

Daniel Almehed

Since the global financial crisis, regulations governing behavioural models have been introduced to cover the content of behavioural models, as well as how these models are updated, used and monitored. Behavioural model governance aims to define the processes and relations that allow risk measurement and risk management to work in accordance with regulations and an institution’s own policies and business strategy.

Behavioural models should be governed using the same principles as other types of risk governance within banks. There are, however, certain areas of governance that have behavioural model-specific challenges. The aim of this chapter is to highlight some of these, and provide examples of how they can be addressed. Since most of the regulations are principles-based, there is no one solution suitable for all institutions, and each institution must interpret regulations in the context of its business. Areas of governance that are of importance to behavioural models include model governance of behavioural assumptions, interaction with planning assumptions, maintenance and development responsibilities, responsibilities of business versus IT, as well as data governance.

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