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Auditing and validating asset liability management models

Documentation of the modeling process is the most common challenge we see with existing models in relation to newly developed corporate model risk management policies.

Having substantive procedural documentation and keeping it current, while considered important, has often taken a backseat to other priorities of model managers.

By Michael Guglielmo, managing director, Darling Consulting Group Prompted by growing regulatory expectations for more substantial processes and controls surrounding decision support modeling, financial institutions of all sizes continue to expand their model risk management (MRM) practices.However, this is quickly being reprioritized as this documentation represents an important component relied on by model risk management experts and validators.This documentation not only signifies the care and effort taken to properly manage a model, but also provides the benchmark for comparison and validation of expected practices.For many organizations, assumptions may be adjusted and other changes made, often without the review and approval of a supervisor or governing body (i.e. For example, the key assumptions for an institution’s asset/liability management model should be reviewed and approved by ALCO regularly and conceptually approved by the board, at least annually.Documentation of any notable changes to a model—in effect, a change log—is now expected.PROFITstar ALM Budgeting allows institutions to track scenarios with built-in strategic monitors that automatically create audit trails.Multiple scenarios can be created and compared to determine the most profitable strategic direction.Reliable information is the key to successful risk management.PROFITstar ALM Budgeting, the financial industry's leading financial management tool, provides a strategic approach to managing risk by closely integrating financial institutions' initiatives with their asset liability management (ALM) program.Assumption management and “change control” is another area where model owners are often falling short relative to new expectations.Institutions are now expected to support their assumptions both quantitatively and qualitatively.

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  1. May 8, 2013. 2 Choosing the Right Asset/Liability Management Model Solution and Keeping It Accurate. risk assessment, it provides excellent insight on what to look for in validation services. FMS members are over 1,400 CFOs, controllers, CEOs, COOs, treasurers, investment officers, internal auditors, and.

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