Revised Guidance on Model Risk Management

The Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) (the "agencies") are issuing the attached Revised Guidance on Model Risk Management, which supersedes and replaces SR letter 11-7,Guidance on Model Risk Management (issued April 4, 2011) and SR letter 21-8,Interagency Statement on Model Risk Management for Bank Systems Supporting Bank Secrecy Act/Anti-Money Laundering Compliance (issued April 9, 2021). This revised guidance reflects supervisory experience and industry feedback accumulated over the past fifteen years, as well as significant advancements in modeling practices.

Based on supervisory experience and industry feedback since the issuance of SR 11-7, the agencies have updated the model risk management guidance to clarify model risk management principles and to emphasize a risk-based approach to model risk management that is tailored to a banking organization's model risk profile and the size and complexity of its operations. The revised guidance highlights sound principles for effective model risk management while recognizing that model risk management practices appropriately vary among banking organizations based on their specific risk profiles and model usage.

Reserve Banks are asked to distribute this letter to the supervised banking organizations in their districts and to appropriate supervisory staff. Banking organizations may provide any feedback or send questions via the Board's public website.¹