1.1 This Prudential Regulation Authority (PRA) supervisory statement (SS) sets out the PRA's expectations for banks' [While the scope of this SS includes banks, building societies, and designated investment firms, the term 'banks' is used in the title to make it clear that the expectations do not apply to insurers or reinsurers.] model risk management (MRM). The PRA considers model risk as a risk in its own right.

1.2 This SS is relevant to all regulated United Kingdom (UK) -incorporated banks, building societies and PRA-designated investment firms with internal model 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).]. The expectations in this SS do not apply to firms which do not have permission to use internal models to calculate regulatory capital and third-country firms operating in the UK through a branch. However, the PRA considers that those firms may find the proposed principles useful, and are welcome to consider them to manage model risk within their firm. Credit unions, insurers, and reinsurers are not in scope of the MRM expectations in this supervisory statement.