Model governanceModel governance

Model governance

14. APRA will not provide approval for use of the IMB Method unless it is satisfied with the regulated institution’s governance arrangements for the ECM and RCM. Key requirements for the governance arrangements include:

(a) integration of the ECM with the risk management framework and ICAAP;

(b) adequate resourcing, skills and objectivity of the team that is responsible for the development and review of the ECM;

(c) approval by the Board or relevant Board committee of the development and use of the ECM;

(d) adequate control processes for the development of the ECM, for calibrating and updating the model at least annually, for changing the model and for applying the RCM;

(e) comprehensive documentation of the model (both the ECM and RCM);

(f) adequate linkages between the output of the ECM and the capital management of the regulated institution;

(g) regular reporting, to the relevant Board committees, Board and senior management, of results from the ECM and RCM and issues arising related to the ECM and RCM; and

(h) adequately documented independent review of the RCM (including those aspects of the ECM that are directly relevant to the RCM), which may be undertaken by an internal group (e.g. internal audit) or by an appropriately qualified external party. The party performing the review must be independent of the normal business operations of the regulated institution and must not have been significantly involved in the development and calibration of the ECM or the RCM. The scope and frequency of independent review must be agreed with APRA and must address both the governance and technical sufficiency of the ECM and RCM.