Model Risk Management Europe 2019

Yet another boring conference attended by a sleeping audience with the highlight being a piece of mediocre cheesecake served during a refreshment break? Model Risk Management Europe 2019, held in London, was without a doubt the very opposite!

Eighty senior managers and professionals from banks & institutions, including HSBC, Nomura, BNP, Crédit Agricole, RBS, Bank of England, Deutsche Bank, Lloyds, etc., gathered to discuss the current state and the future of model risk management (MRM). What was the result? Two days full of insights on topics covering building model inventory, AI and automation, model validation, regulatory requirements, and audits which covered the MRM from various points of views. In case you missed the event, here are a few notable points.

Building a model inventory

According to talks & informal discussions with attendants, building a model inventory currently seems to be an emerging topic in Europe. Actually, it was a leitmotif of the entire conference. Thoughts like "...building a model inventory can be a significant competitive advantage" or "...model inventory is a key" could be heard over and over again. On the other hand, a fact that was often stressed is that model inventory is only a part of the entire model governance framework. Other components, like proper training of experts or complex processes, must be implemented or enhanced in order to boost productivity and efficiency and ensure a higher level of safety. Many attendants were also aware that model inventory is not the final step. In fact, it is where the fun begins. Once there is a robust inventory, financial institutions can (and want) go beyond that. This "promised land" is called automation. It is clear that repetitive tasks like documentation generation, model backtesting, or data collection & cleansing can and should be automated. The amount of monkey work and the probability of human errors can then be even more reduced to save significant costs. But the inevitable first step is having a model inventory, which is something many European banks are working on now.

AI + MRM = ???

The solution to this equation is yet to be found. Artificial intelligence in MRM was believed to be the future by the majority of the conference audience. However, there are still plenty of unsolved issues on how to tackle risks arising from using AI. AI obviously has the potential to transform the industry, but there is still an extensive amount of work remaining to be done. Despite the nature of the business, which one might call highly regulated, the AI is slowly starting to gain ground in MRM and it will be extremely interesting to see it evolve in the near future.

Overall, It was pleasing to see that MRM is a hot topic already and that there are still plenty of opportunities for further enhancements. Big thanks to the Centre for Finance Professionals for organizing the event. It was definitely time well spent, and CloseIT was really proud to be one of the exhibitors.