1.1 This Consultation Paper (CP) sets out the Prudential Regulation Authority's (PRA) proposed expectations regarding banks' management of model risk. The PRA has developed a proposed set of principles which it considers to be key in establishing an effective model risk management (MRM) framework.

1.2 The PRA considers MRM as a risk discipline in its own right, and proposes to embed these principles, in a proportionate manner, as supervisory expectations for all regulated United Kingdom (UK)-incorporated banks, building societies, and PRA-designated investment firms (hereinafter 'firms') [The term 'banks' will be used where the PRA need to differentiate between the banking and insurance sectors.]. The proposed expectations on MRM are set out in a proposed new Supervisory Statement (SS) 'Model risk management principles for banks' (Appendix 1).

1.3 This CP is relevant to all firms in the wider banking sector and their external auditors [Firms' external auditors are invited to respond to this CP given their role in assessing firms' implementation of expected credit loss accounting under Financial Reporting Standards 9 (IFRS 9).]. Credit unions, insurance, and reinsurance firms would not be in scope of the proposed expectations.