Initially, when the regulatory guidance as stated in Office of the Comptroller of the Currency ("OCC") bulletin 20011-12 and Federal Reserve Board ("FRB") Supervisory Letter SR 11-7 was issued it was not specifically focused on models as used in the areas of AML Transaction Monitoring and Sanctions Screening. They were more broadly focused on other areas such as liquidity, interest rate, capital, and credit. Using this guidance for purposes of validating AML and Sanctions Filtering models has been a point of contention since the beginning of AML transaction monitoring and Sanctions filtering programs. Many issues are behind this - the primary and initial being the question "What is a Model" in the context of transaction monitoring and sanctions filtering? And while many may still argue that programs in place to monitor and filter transactions do not meet the regulatory definition of a model, this matter has largely been settled in the minds of the regulators. One simply needs to look at first day letters and Reports of Examination ("ROE") to see the position of the regulators.
A sound model validation program consists of the following:
ICRM can assist you in the development of your model validation framework and all of the components necessary for sound model risk management. ICRM can also assess your model risk management framework and related processes. However, recognizing the potential conflict, ICRM can perform or assist in the performance of a model validation only if we were not involved in the development, implementation or use of your model.