The Validation Cycle. 11 May Rob Merry and Barney Wanstall INTERNAL

Transcription

1 The Validation Cycle May Rob Merry and Barney Wanstall

2 Our workstream: IMV and on-going process Purpose To develop an industry wide overview of the IMV. To provide key principles that firms should consider when implementing and operating a pragmatic and value-add IMV. We have road tested our approach with several market players Key questions What is the IMV and who should be involved? What are the triggers to the and how should these be prioritised? What are the outputs of the IMV for key stakeholders? What we have achieved How should the IMV be improved over time and continue to add value? Developed an view of the IMV and gained feedback from the steering committee and aligned workstreams Road-tested the with firms and the PRA (robust, useful, easy to understand, agreeable) th May - Presentation to IMIF forum

3 model validation a. Potential triggers for b. Risk Impact c. IMV scope, g. Communication of, and actions

4 Alignment to IMIF workstreams Workstream D: IM Flexibility and alternative uses of IM Workstream B: IMV Governance and operating model a. Potential triggers for b. Risk Impact c. IMV scope, Workstream E: Validation tools and Change Policy g. Communication of, and actions Draft: Current working draft Workstream C: Board s understanding and challenge of IM and IMV Process / Board s IMV MI and reporting Workstream F: IMV for Operational Risk Workstream G: IMV for Dependencies and Diversification

5 a. Potential triggers for Qa. Our firm has suite of triggers which should give coverage of both internal and external factors impacting the model or model validation.. 6 Qb. Our triggers are both forward looking and tailored to the uses of the model and decisions on model output..77 We've done enough to demonstrate Solvency II compliance but there is more to be business-useful. We're undergoing a refinement exercise to consider triggers for all model uses, not just SCR.

6 Qa. Our firm has a formal mechanism for assessing potential triggers for validation against internal model risk..6 Qb. Our assessment of triggers is proportionate - not all potential triggers result in additional validation..9 We are currently working towards developing an assessment mechanism, as we are still validating the full model. We need the board to have much more confidence in the internal model before we can implement it however

7 c. IMV scope, & prioritisation Qa. The IMV scope and planned activity varies based on business need and the outputs from the trigger assessment. It 7 should consider materiality and proportionality Qb. Our validation scope and plan articulates how objective challenge of the model will be achieved.8 Describing how objective challenge will take place is pointless, what really matters is that it actually does, and of course that it is evidenced too

8 Qa. Validation is carried out with an independence of mind and encourages free thinking. Qb. Validation is completed by individuals with the right skills, experience and knowledge Getting the right staff to perform validation is crucial. Validators should really be experienced modellers.

9 Qa. Our firm has a range of reporting mechanisms that clearly communicate s, recommendations and model limitations to appropriate stakeholders..68 Qb. The limitations of the validation assessment are understood by key stakeholders and appropriately reflected in the risk management framework..7 The reports are very clear and well developed but I am not sure the recipients actually read them

10 learned and 6 Q6a. Our firm has embedded model validation into the ongoing running and development of the model.. 6 Q6b. Recommendations for of the validation itself (not just the model) are considered in subsequent validation s..77 the process is quite laborious and bureaucratic - we could do with something that's more automated and light-weight.

11 on, Validation findings Q7a. Our firms has a clear communication strategy and plan for the communication of the validation results.. Q7b. Our firm has a regular of reporting of validation results (push) as well as an ongoing business appetite to request the results of validation (pull).. Validation probably much more "push" than "pull" at the current time (and probably expected to remain so). Work to do on developing the 'pull.

12 , i. Operations and j. People 6 Q8a. Our firm ensures that the IMV governance allows the validators to remain independent of mind and free for undue influence by management..9 6 Q8b. Our firms ensures that they have access to the required skills, knowledge and experience for the IMV..8 As our needs for IMV become clearer we have begun to recruit individuals with the right skills. This is an ongoing process and not likely to be fully understood until next year.

13 Overall Maturity 6 Q9d. Overall, how mature do you think your model validation is?. Average Whilst there is work to do, the business is confident that IMV is moving in the right direction. We feel it will be an integrated and BAU Process within the next -8 months.

14 Institute of Risk Management Tel: +()