What Is Model Risk Management?

Model Risk Management — the discipline of identifying, assessing, mitigating, and monitoring risks arising from the use of quantitative models to support business decisions.

Model risk management (MRM) predates AI governance — the US Federal Reserve's SR 11-7 (2011) is the foundational regulatory guidance, written for statistical and econometric models in banking. AI systems are a superset of the models SR 11-7 was designed for, and regulators have progressively extended MRM expectations to machine learning. MRM covers the full model lifecycle: development, validation (independent from development), approval, ongoing monitoring, and retirement. The "use it or lose it" principle — understanding why a model produces its outputs — is increasingly strained by complex ML systems.

Source: Federal Reserve SR 11-7 (2011); OCC 2011-12