Institutions must implement a process to monitor the performance of their models on a regular basis, as part of their model life-cycle management. The relationship between model performance and usage is asymmetric. A robust model does not guarantee relevant usage. However, an improper usage is likely to impact the model performance. Consequently, institutions must ensure that models are used appropriately prior to engaging in performance monitoring.
9.1.2
The objective of the monitoring process is to assess whether changes in the economic environment, market conditions and/or business environment have impacted the performance, stability, key assumptions and/or reliability of models.
9.1.3
Institutions must implement a documented process with defined responsibilities, metrics, limits and reports in order to assess whether models are fit for purpose, on an ongoing basis. Upon this assessment, there must be a clear decision-making process to either (i) continue monitoring or (ii) escalate for further actions.