Self-assessments are critical to compliance with Internal Model Method (IMM) regulations.  Ideally, self-assessment should be structured to encompass all regulatory aspects as well as bank functions and processes.  This can help the bank evaluate its performance against a broad spectrum of IMM-related regulatory requirements while providing insight into IMM readiness across all processes, data, systems, models and technology.  The self-assessment should be objective, and, although conducted by a third party, should take into consideration input from subject matter specialists (SMSs) within the bank.  This enables identification of potential gaps.

The basis for a well-organized self-assessment is the collection and display of data.  This should be structured to allow for summary views by leadership, as well as the development of metrics to show progress on gap identification and closure.   To demonstrate a clear mapping of the regulations and their requirements, the self-assessment should be organized around the IMM regulation and should articulate the bank’s point of view regarding interpretation and adherence to the regulation.  There should be clear escalation protocol and documentation should the business lead disagree with either the regulation interpretation or the findings.

Self-assessments deliver real-time information on how the organization is currently complying with explicit requirements.  It may be beneficial to perform a self-assessment at the start of the project as a baseline, during more mature phases as a progress evaluation, and immediately before the examination to determine preparedness.  The effectiveness of self-assessments would depend in part upon the involvement of bank SMSs; upon the structure of the data collection process; and upon having a clear rationale for any exclusions or inclusions in IMM that deviate from the regulation, along with appropriate sign-offs.  Decisions or outcomes should be catalogued and documented to make the self-assessment more complete.

Another important success factor in IMM compliance―one which will be discussed in the next blog in this series―is the articulation of a coherent target operating model incorporating stakeholder buy-in.

For more information, see SlideShare deck: “Considerations for an Effective Internal Model Method Implementation” .

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