Banking Agencies Provide Guidance on Model Risk Management

The federal banking agencies and the Financial Crimes Enforcement Network today issued a statement on the use of the “Supervisory Guidance on Model Risk Management” to comply with Bank Secrecy Act/anti-money laundering rules. The model risk management guidance, or MRMG, is “principles-based and articulates the agencies’ general views” regarding model risk management practices.

“While the MRMG provides a comprehensive discussion of all aspects of model risk management, the practical application of any principle discussed in the MRMG by a bank depends, in part, on the bank’s reliance on, and the nature of, its models,” the agencies said in a joint statement. “While models used for BSA/AML compliance may be different from other models, appropriate model testing and validation processes typically take these differences into account.”

The agencies emphasized that no specific model risk management framework is required, and that the MRMG does not alter existing BSA/AML regulatory requirements or establish new supervisory expectations. The agencies said that the MRMG does not have the force of law and is not meant to serve as a set of testing procedures regarding BSA/AML systems. ABA has previously urged regulators for guidance about the application of model risk to AML compliance.

The agencies also issued a request for information about how the MRMG supports bank compliance with BSA/AML and Office of Foreign Assets Control requirements and whether additional guidance would be helpful.