Regulatory compliance for model risk management (Basel III/IV, SR 11-7, ECOA, fair lending)

1. Master the core regulatory lexicon: Study the definitions and key requirements of SR 11-7 (Fed), Basel III/IV capital requirements (specifically the Internal Ratings-Based approach), and the Equal Credit Opportunity Act (ECOA) as implemented by Regulation B. 2. Understand the model risk management lifecycle: Learn the three pillars-model development, validation, and governance-as outlined in SR 11-7. 3. Focus on documentation standards: Practice creating a basic model risk assessment template covering model purpose, methodology, limitations, and intended use.

1. Apply frameworks to specific models: Conduct a mock validation of a common model (e.g., a probability of default model for credit risk) against SR 11-7 requirements. Document findings on conceptual soundness, data integrity, and performance testing. 2. Analyze fair lending implications: Take a lending model's output and perform a disparate impact analysis using a protected class (e.g., race, gender) as per ECOA and the Fair Housing Act. Calculate adverse impact ratios. 3. Avoid common mistakes: Do not treat validation as a one-time checklist; understand it is a continuous process. Avoid using overly simplistic fairness metrics without understanding their regulatory context.

1. Architect enterprise model risk frameworks: Design a comprehensive Model Risk Management (MRM) policy that integrates requirements from SR 11-7, Basel's IMA/IRB approaches, and fair lending laws into a single, auditable governance structure. 2. Lead regulatory examinations: Prepare for and manage interactions with regulatory bodies (OCC, Fed, CFPB) by developing a narrative that links model performance, validation findings, and remediation plans. 3. Mentor and set standards: Guide teams on complex issues like the interaction between model risk and climate risk stress testing, and establish internal standards for challenger model development and model tiering based on materiality.