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10.5 Review Frequency

10.5.1
 
All models must be validated at regular frequencies appropriate to model types and tiers. The review periods should not be longer than the ones presented in Table 2 below. More frequent reviews can be implemented at the discretion of institutions, depending on model types and complexity. More frequent reviews may also be necessary in the case of unforeseen circumstances, for instance related to changes in model usage and/or changes in the economic environment. Less frequent reviews are possible in certain circumstances, but they should be justified and will be subject to assessment from the CBUAE.
 
10.5.2
 
The dates corresponding to the last monitoring and validation exercises must be tracked rigorously, included in the model inventory and reported to the Model Oversight Committee at least every quarter. The internal audit function must ensure that this process is implemented effectively by the model owner and the validator.
 

 
Table 2: Minimum monitoring and validation frequencies for most common models
 
  Tier 1 modelsTier 2 models
PortfolioModel TypeMonitoringValidationMonitoringValidation
WholesaleRating1 year3 years2 years5 years
WholesalePD term structure1 year3 years2 years5 years
WholesaleMacro-PD1 year2 years2 years3 years
WholesaleLGD1 year3 years2 years5 years
WholesaleMacro-LGD1 year2 years2 years3 years
RetailScorecard3 months1 year6 months3 years
RetailPD term structure1 year2 years2 years3 years
RetailMacro-PD1 year2 years2 years3 years
RetailLGD1 year2 years2 years3 years
RetailMacro-LGD1 year2 years2 years3 years
EADEAD1 month3 years2 years5 years
Trading BookVaR and related models3 months3 years*6 months4 years*
Trading BookExposure and xVA1 year3 years*6 months4 years*
MultipleValuation1 year3 years*n/a4 years*
MultipleConcentration1 year3 year**n/an/a
MultipleIRRBB1 year3 year**n/an/a
MultipleOther Pillar II models1 year3 year**n/an/a
MultipleCapital forecasting1 year3 year**n/an/a
MultipleLiquidity1 year3 year**n/an/a

 

10.5.3
 
Where [*] is indicated in table 2 above: For pricing and traded risk models such as VaR, exposure and xVA models, a distinction should be made between (i) the model mechanics, (ii) the calibration and (iii) the associated market data. The mechanics should be reviewed at least every 3 to 4 years ; however the suitability of the calibration and the market data should be reviewed more frequently as part of the model monitoring process. In addition to these frequencies, any exceptional market volatility should trigger a revision of all model decisions.
 
10.5.4
 
Where [**] is indicated in table 2 above: For deterministic models such as capital forecasting, concentration and IRRBB models, a distinction should also be made between (i) the model mechanics and (ii) the input data. Whilst the mechanics (methodology and system) can be assessed every 3 years, the calibration must be reviewed yearly in order to assess the appropriate usage of the model with a new set of inputs. This yearly frequency is motivated by the strategic usage of such models in the ICAAP.
 
10.5.5
 
For models other than those mentioned in table 2 above, institutions must establish a schedule for monitoring and validation that is coherent with their nature and their associated Model Risk.