SAS urges action following latest Bank of England announcement

Leading analytics company, SAS, is urging UK banks to prepare for what ‘PS6/23 – Model risk management principles for banks’ will require of them, after the Bank of England’s Prudential Regulation Authority (PRA) announced there are now just 12 months until the regulation comes into effect.

With the clock ticking and 17 May 2024 firmly set as the implementation deadline, banks, building societies and investment firms now have a limited amount of time to ensure that they meet the requirements of the regulator.

Having previously outlined the five core principles deemed necessary to create a robust MRM framework, the PRA is seeking to improve standards across the banking sector by setting supervisory expectations.

Johnny Steele, Head of Banking, SAS UK, said:

“Until now, UK regulation was largely concerned with managing model risk on certain model types including capital and stress testing models. The proliferation of AI and Machine Learning models to support material decision-making across banks means regulatory scrutiny will now be extended to cover all models from this time next year. This will include those used in ‘all decisions made in relation to the general business and operational banking activities, strategic decisions, financial, risk, capital, and liquidity measurement and reporting, and any other decisions relevant to the safety and soundness of firms’.

“Among other things, this change will mean breaking down operational silos and ensuring a common approach for model lifecycle management. Banks must also nominate an individual to be accountable for their MRM frameworks and ensure their model inventories are complete.”

To avoid falling foul of the regulator, organisations will need to address these challenges head-on and act fast. SAS has been working with some of the UK’s biggest banks to define an end-to-end solution for model lifecycle management, which integrates model risk at every stage.

Johnny continued:

“On the one hand, our solution standardises the governance and processes around model registration, validation, approval, monitoring and reporting - putting the bank in a much stronger position from a regulatory perspective. On the other hand, it still gives data scientists the freedom to choose whatever tools and languages they prefer for data preparation, model building, and execution, meaning that they can continue to do the most interesting, creative, and valuable part of their job with their preferred tools.”

With just 12 months to implement any required changes, banks will not only need to evaluate their own working practices and accountability structures, they must also consider if their technology is up to the task.