An Internal Model Approval Process (IMAP) is where risk modelling meets governance and regulatory requirements. Such a diverse meeting can be interesting but also challenging. The technical aspects of the model must be translated into policies and procedures and the appropriate governance and senior management engagement is required.
Understandably, regulators are not going to forego the comfort of their own calculation method (‘standard formula’) lightly. They expect a degree of reassurance that the alternative is theoretically robust, well suited to the risk profile of the firm and appropriately governed, including by the Board.
Crescendo Advisors’ experience of the IMAP process is quite extensive and includes:
developing and implementing data governance requirements;
developing and implementing approaches for model change;
planning of internal model validation covering technical aspects, scoping, evidence identification and managing relationship with risk and internal audit;
evidencing compliance with the use test; and
leading the development of the actual internal model application and letter to the PRA.