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ARTICLE · 19 NOVEMBER 2019

Who Owns Model Risk In An AI World?

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Complicated computerized models and quantitative analyses are a fundamental mainstay in the financial services industry, from quantitative investment asset managers who use models to manage investment portfolios, ...

United StatesTechnology
Reginald Goeke
Reginald Goeke
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Complicated computerized models and quantitative analyses are a fundamental mainstay in the financial services industry, from quantitative investment asset managers who use models to manage investment portfolios, to banks who use models to underwrite loans or monitor for money laundering or other behavior. With the benefits of those models comes several forms of risk, generally lumped together as "model risk."

Model risk generally refers to the potential for adverse consequences resulting from actions taken or decisions made based on incorrect or misused models or model outputs, and it includes risks related to errors in the quantification, coding or calculation process, use of improper or inaccurate data or other inputs, incorrect or inaccurate model design, or misuse or misapplication of models or model outputs. (The definition of a model "error" of "defect" is itself a subject of substantial debate, and often depends on the purpose and context for using the model.

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