Pub. 11 2021-2022 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S May • June 2021 17 Call me at 480.259.8280 Based in Phoenix, Ariz., serving Arizona and Colorado Tracy Peterson Together, let ’s make it happen. Member FDIC 24844 We do not reparticipate any loans. Commercial & ag participation loans Bank stock & ownership loans Bank building financing Business & personal loans for bankers As your partner, we share your values. You’ll find the community banking service, integrity and trust you’re used to. Why choose Bell as your bank’s lending partner? inventory, include each model’s purpose, owner, data sources, and significant assumptions. • Understand regulatory requirements related to model use and verification — Financial institutions should take time to understand the regulatory requirements related to model development, implementation, and use, including validation, even if compliance is not currently required. This understanding will help the organization manage its entity-wide risk and help establish MRM processes aligned to comply with regulations they may be subject to in the future. • Test and validate models — Institutions should test and validate any significant or complex models before and after implementation so management can be confident in model outputs. For example, before implementing a new model, running parallel with the existing process will ensure the new model is operating as intended and in line with expectations. Ongoing, the model should be tested for accuracy to determine if use is still appropriate given potential changes in facts and circumstances. As recommended in the regulatory guidance, individuals or a third party (independent from the models’ users and developers) should conduct the testing and validation. Based on the testing process results, institutions can identify model errors, track corrective actions, and ensure appropriate use. o Note: Financial institutions should validate the usage of third-party models to determine whether a model is appropriate for its intended use and that any customizable model assumptions are accurate and relevant. • Involve the right stakeholders — MRM should be an entity-wide activity. The board should be responsible for providing governance of the entire MRM process, while management should develop the MRM framework and related strategies. Leaders with insight across the organization should be engaged in the MRM process to ensure assumptions are appropriate, model documentation is robust, and data sources are valid and accurate. Knowing you are making the right decisions Models can be instrumental in driving better business decisions or your financial reporting process — but only if you are able to rely on the outputs. If you would like more information on our model validation services or how we can enhance your MRM framework, please contact your local Plante Moran business advisor. n