Validation _______________________________________________________
Faced with changing circumstances, modelled relationships can breakdown, which is why validation is a key area within in the Basel field, as performance and models need to be reviewed on an annual basis. Verifying that models continue to perform and remain compliant is of importance not just from a regulatory point of view, but also to satisfy business needs.
Volterra have reviewed and validated rating systems for a number of lenders. We draw on our wide statistical, Basel and economic and Basel experience. Our experience spans the different techniques and product areas, having reviewed retail, treasury and corporate models.
Our approach broadly consists of:
- Studying the appropriate internal documentation and relevant data
- Liaising with key personnel to gain a full background picture of the rating system
- Reviewing the overall framework, specifically considering regulatory compliance
- Reviewing models, assumptions, discriminatory power and results of modelling
The independent view from outside is a powerful tool in ensuring that approaches are appropriate and in line with industry best practice. Volterra provide the opportunity for feedback on our documentation before agreeing the final deliverable report. Any recommendations are explained and discussed fully with the client, as well as management actions in response to our recommendations.
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