Over the past 15 years regulators world-wide have been looking to strengthen the controls on Model Risk Management, with the Federal Reserve passing its guidance SR11-7 in the US in 2011.
Building on this, the UK’s Prudential Regulation Authority (PRA) issued their paper CP6/22 in June last year. In laying out the principles of Model Risk Management the PRA has not only extended what is viewed as a model, but also outlined five principles for the management of these models within Financial services organisations.
The guidance on the use of spreadsheets in financial institutions is likely to have a significant impact on UK banks that rely heavily on spreadsheet-based models for financial reporting and risk management. The guidance sets out standards for spreadsheet use, such as:
Ensuring that spreadsheets are accurate, complete, and auditable
Properly documenting spreadsheet models and their inputs
Having a robust version control system
Testing spreadsheet models regularly
Identify solutions to allow models to scale.
The eventual regulation is expected in Q1 2023 with implementation within 12 months.
To this end, banks will need to review their current spreadsheet use and make necessary changes to comply with the guidance, which may require significant time and resources. Failure to comply with the guidance can result in regulatory sanctions.
How Schematiq help firms addresses the Model Risk Management challenges of CP6/22
The Schematiq platform allows banks to take control of spreadsheet models and eliminates the need to re-platform and this is how:
The Schematiq workbench allows all an organisation’s data to be accessed on the desktop, eliminating VBA and allowing new design patterns to significantly reduce spreadsheet size and complexity as well as the sharing of logic in a very controlled manner.
Schematiq Workbook manager provides version control for Spreadsheets using an industry-standard Git repository as well as allowing functional elements of a worksheet to be defined and tested. These tests will run every time a sheet is saved ensuring the continuity of an expected operation. Spreadsheets can be deployed to the Schematiq cloud platform to be scheduled or called as APIs. This allows flexible systems connectivity to your Excel logic either from the best visualisation tools such as Power BI or Tablea; Business process enablement tools like Appian or integrated into your enterprise trading risk or finance platforms.
The Schematiq Portal allows spreadsheet environments to be configured and governed defining project hierarchy and setting access rights to projects and functions. Models can be scheduled to run in the elastic cloud, enabling faster stress test results, and access to a library of Schematiq functions that can be called with the knowledge that all activity is fully audited.
The beauty is that the banks team can continue to carry on maintaining their models in Excel reducing both learning and transformation cost. Schematiq will also speeds up the banks time to market – with models changes translating into days rather than months and allowing models to cloud scale for faster answers and significantly reducing operational risk for the organisation.
Take control of your models today with Schematiq