1.1 This Prudential Regulation Authority (PRA) policy statement (PS) provides feedback to the responses to consultation paper (CP) 6/22 - Model risk management principles for banks. It also contains the PRA's final policy, as follows:

- supervisory statement (SS) 1/23 - Model risk management principles for banks (see Appendix 1).

1.2 The feedback to the responses to CP6/22 in this PS is relevant to all regulated UK- incorporated banks, building societies, and PRA-designated investment firms (hereinafter 'firms'). For the reasons explained in the Change in scope section below, the final policy in Appendix 1 (SS1/23) only applies to firms with internal model (IM) approval to calculate regulatory capital requirements [These are firms with approval to use internally developed models to calculate regulatory capital requirements for credit risk (Internal Ratings Based approaches), market risk (Internal Model Approach) or counterparty credit risk (Internal Model Method).] (hereinafter 'IM firms').

Background

1.3 In CP6/22, the PRA proposed firms should adopt five principles which it considers to be key in establishing an effective model risk management (MRM) framework. The principles were intended to complement existing requirements and supervisory expectations in force on MRM, and included proposals for:

- a proportionate implementation within firms and across firms;