Model Risk Governance for Financial Services Client
To fulfill its mission as a Government Sponsored Entity (GSE), our client conducts business in the U.S. secondary mortgage market and works with a national network of mortgage lending customers. Our client has significant responsibilities to properly oversee its operations and mitigate risk.
Challenge
Our client recognized that their current operating model was not effectively managing risk and providing support to their internal business customers. The client determined that the implementation of Three Lines of Defense Framework would enhance the risk framework and better serve internal customers by placing modeling and governance functions into the business areas as the first line of defense. The Three Lines of Defense Framework assigns risk responsibilities to the:
First Line – Functions that own and manage risks
Second Line – Functions that oversee risks
Third Line – Functions that provide independent assurance
The implementation of this framework required a robust program and change management office to lead the creation of roles and responsibilities, documentation of policies and procedures, and development of governance structures.
Solution & Delivery
Clarendon Partners transformed the client’s organizational structure, and processes from a decentralized system of oversight to the Three Lines of Defense Framework. To achieve the desired transformation, Clarendon Partners:
Developed an operating model for the business line to manage risk and better serve the business.
Designed and documented model lifecycle and ongoing model operations methodology, templates and procedures.
Created a Model Review Committee to provide governance from business users, key assessors and the second line of defense.
Developed key performance, risk and control indicators to measure operational and risk performance.
Created requirements and managed the implementation of a governance tool.
Assessed data security and created new security-related processes and procedures.
Established Customer Councils to foster innovation.
Developed recommendations for future improvements to the effectiveness and efficiency of the newly developed framework.
Project Length: 12 Months
Impact & Lasting Value
Our client’s organizational model, processes and procedures, and systems are recognized as best in class and are being adopted by the other lines of business. The implementation of the first line of defense has achieved a significant reduction in the number of second and third line findings. The client is now able to focus on improving the speed of model changes to support the business’s regulatory requirements and strategic visions to gain market share.