Streamlined and enhanced model risk management

Millennium BCP, Portugal’s largest private bank, provides a wide variety of financial services not only in Portugal but throughout Europe, Africa and China. To address business challenges and comply with banking regulations, the bank has multiple models in place for many purposes (e.g., regulatory capital, ICAAP, IFRS 9, ALM, stress testing, valuation, pricing).

Due to the growing cost and complexity of managing the multiple models and to the overall exposure to model risk, the bank wanted to simplify its model risk management (MRM) framework and improve capital and operational efficiency. At the same time, it wanted to ensure compliance with all the European Central Bank’s governance requirements and best market practices.

PwC advised Millennium BCP on what constitutes a best-in-class MRM framework and how to design a comprehensive MRM policy that covers all risk and capital models, as a first step. This included: an inventory and repository of all risk models and their characteristics, a structured and comprehensive documentation depository for all risk models, a risk-sensitive assessment methodology and an approach to risk tiering, efficient model maintenance procedures, tailored workflows, sound validation/monitoring/audit reviews, multidimensional and flexible risk reporting, and processes to manage findings and react to the model-related recommendations.

PwC helped embed all these features and processes into a software solution (SAS MRM Solution) and then co-led its implementation at Millennium BCP. By working closely with the bank and SAS, PwC ensured that the processes, IT systems and risk model characteristics were rigorously implemented and tailored to the bank’s needs.

With PwC’s help, and after nine months of intensive collaboration involving all model stakeholders, Millennium BCP has an integrated risk management solution and workflow that guides MRM policy to ensure that risk model assessments are systematically factored into all bank activities, from planning to execution to monitoring/validation/audit. There is also a single database for all model findings, a centralized model documentation repository, and reporting tools that allow all stakeholders (from the first to third lines and top management) to monitor critical risk KPIs for day-to-day and strategic decisions. More than 100 models are subject to this framework and a roll-out is in process to include the remaining risk types and subsidiaries.