If an institution merges with or acquires another institution, it must re-visit all the elements of the model management framework, as part of the integration process. The modelling framework and all the principles of model life-cycle management must be applied consistently across the newly formed institution. In particular, model ownership must be clearly defined. The newly formed institution must have sufficient resources to fully manage the new scope of models.
4.11.2
The scope of models must be re-visited to assess whether there is a degree of overlap between models. Depending on circumstances, models may need to be recalibrated or redeveloped. Models must be representative of the risk profile of the newly formed institution. In the case of overlap between two similar models, a new single model must be developed based on a larger data sample. This new development must occur promptly after the completion of the merger or the acquisition.
4.11.3
Institutions must pay particular attention to the integration of historical data, and future data collection, subsequent to the merger or the acquisition. This requirement applies to all data fields used as inputs to the existing models and to the future models to be developed, in particular, default rates and recovery information. Historical data time series must be reconstructed to reflect the characteristics and risk profile of the newly formed institution. Upon the implementation of the MMS, this requirement applies retroactively to cover, at a minimum, a full economic cycle in the UAE, and where possible covering the 2008 global financial crisis. Future data collection must be performed for the entire scope of the newly formed institution.
4.11.4
In the case of the disposal of an entity, a subsidiary, a branch and/or a large portfolio, institutions must ensure that the modelling framework and all the principles of model life-cycle management are adjusted to fit the needs of the reduced scope of portfolios, products, obligors and/or exposures.