You might think that the most important attributes of a model validator would be things like:
- Mathematical competence, to ensure the technical correctness of the methodology and that numerical schemes converge
- Knowledge of business context to evaluate the appropriateness of the model, and compare against alternative models
- The ability to write clean, well-structured code
- Technical writing skills to prepare clear and comprehensive documentation
And these things are all important. But there’s another very important aspect of model validation that often gets overlooked: the ability to courageously and effective challenge management and stakeholders.
It’s so common to encounter managers and stakeholders trying to ignore model faults and obstruct their resolution. We’ve encountered:
- Managers using model oversight committees, an institution intended to improve model integrity, to instead block model fixes and changes for political reasons
- Managers trying to make technical decisions about models without involving quantitative or risk staff
- Managers referencing model documentation that doesn’t exist
- Vendors pretending that model faults don’t exist, in the hope of avoiding admitting to the client that their model is wrong (causing the client to continue unknowingly using an erroneous model)
This is why it’s so important that model validators can operate independently of management and stakeholders. Ideally, model validation capability would be external to the firm.
We’re proud of our external model validation service, which will not only ensure the highest quality of model validation, but operate with total independence of internal politics and with a high degree of integrity.
Are you looking to grow your model validation capability? We offer model validation consulting and advisory services, including validation of AI generated models, and developing automated validation systems.
Contact us today to discuss how our external consultants are the model risk solution that your business needs.