The Risk Management Regulation (Circular No. 153/2018) issued by the Central Bank of the UAE (“CBUAE”) on 27th May 2018, states that banks must have robust systems and tools to assess and measure risks. In particular, when models are used, they must be managed appropriately to support decision-making.
(i)
Article 2.1: “A bank must have an appropriate risk governance framework that provides a bank-wide view of all material risks. This includes policies, processes, procedures, systems and controls to identify, measure, evaluate, monitor, report and control or mitigate material sources of risk on a timely basis (…).”
(ii)
Article 4.1: “A bank must have systems to measure and monitor risks which are commensurate with the risk profile, nature, size and complexity of its business and structure.”
(iii)
Article 4.3: “Where a Bank uses models to measure components of risks, it must have appropriate internal processes for the development and approval for use of such models and must perform regular and independent validation and testing of the models (…).”
1.1.2
Consequently, the Model Management Standards (“MMS”) present modelling practices that must be implemented by banks in the UAE, if they decide to employ models for decision-making. These standards are based upon practices deemed appropriate within the financial industry internationally with consideration of local circumstances. The MMS therefore represent the minimum requirements to be met within the UAE.