Institutions must maintain a comprehensive inventory of all their models employed in production to support decision-making. The inventory must cover internal models and models provided by third parties. It must contain sufficient relevant information to support model management and mitigate Model Risk.
4.4.2
The inventory must cover models both currently in use and employed in the past for production (starting from the implementation of this MMS). Institutions must ensure that they can refer and/or roll back to previously employed models, if necessary. Consequently, institutions must have a model archiving mechanism in place supported by appropriate documentation and IT system infrastructure.
4.4.3
Each model must have a unique nomenclature and identification number that must be explicitly mentioned in any related model documentation. A model with a new calibration must carry a different identification number. Any variation of a model requiring a separate validation or approval should be identified as a separate model.
4.4.4
The model inventory must include, for each model, all the references and documents pertaining to each step of the life-cycle. Amongst others: (i) the dates of each step, including past and planned steps, (ii) the internal party responsible for each step, and (iii) previous validation exercises and audit reviews plus any reference to their respective outcome. Third-party consultants must not be considered as responsible for any step but only considered as supporting their execution. Where consultants have been involved, the details of the consultants must be recorded.
4.4.5
Models must be grouped based on their associated Model Risk.
(i)
At a minimum, institutions must create two groups referred to as Tier 1 and Tier 2 models, with Tier 1 models being more critical than Tier 2 models. If institutions already employ more than two groups, those can be retained for internal purpose. In the context of the MMS and for regulatory purpose, the models deemed less material than Tier 2, must be regarded Tier 2.
(ii)
Whilst the grouping decisions are left to the discretion of each institution, they will be reviewed by the CBUAE as part of its supervisory duty. At a minimum, IFRS9 models for large portfolios (measured by exposure) and capital forecasting models must be classified as Tier 1.
(iii)
Institutions may prioritise model management by tier once they have established a clear grouping framework based on Model Risk. In the MMS, in the absence of specific reference to model tiers, the requirements apply to all models irrespective of their materiality, as these requirements must be regarded as fundamental building blocks of model management. Where needed, the MMS explicitly refers to model Tier 1 and Tier 2.