Central Bank of the UAE Introduces New Model Risk Regulations

The Central Bank of the United Arab Emirates (CBUAE) has recently introduced new regulations aimed at ensuring banks in the country manage model risk effectively.

New Regulations: A Step Towards Harmonization

The CBUAE has released two sets of regulations:

• Model Management Standards (MMS): Outlines general standards applicable to all models.
• Model Management Guidance (MMG): Provides technical guidance on implementing certain types of models.

These regulations are designed to ensure that banks in the UAE meet quality standards for their models and reduce model risk.

Key Objectives of the New Regulations

The CBUAE has identified three main objectives:

1. Ensure Quality Standards

• Guarantee that banks’ models meet high-quality standards.
• Support decision-making and reduce model risk.

2. Improve Homogeneity

• Promote consistency in model management across banks in the UAE.
• Harmonized regulations will save banks time and resources.

3. Mitigate Underestimation of Provisions

• Reduce the risk of underestimating provisions and capital requirements.

Impact on Banks

The introduction of these regulations will require banks in the UAE to take several steps:

1. Read and Understand the Regulations

• Thoroughly familiarize themselves with the new rules.
• Identify any gaps in their current model management structure, personnel, and processes.

2. Conduct Internal Audits

• Perform a comprehensive review of their model management structure, personnel, and processes to identify gaps.
• Create detailed plans to address any identified gaps.

3. Create Remediation Plans

• Develop detailed plans to address any identified gaps, which may involve organizational changes, hiring additional staff, or rewriting internal risk frameworks.

Non-Compliance Consequences

Failure to comply with these regulations can lead to fines, increased regulatory scrutiny, and even restrictions on future growth and lending.

Benefits of Compliance

The benefits of compliance are numerous:

1. Increased Efficiency

• Harmonized model development and deployment processes will save banks time and resources.
• Improved forecasting and decision-making.

2. Improved Forecasting

• Better models will enable banks to make more accurate predictions and decisions.
• Enhanced profitability by reducing losses.

3. Enhanced Profitability

• By reducing losses and improving forecasting, banks can increase their bottom line.

Qarar’s Expertise

Qarar, a leading risk consultancy company in the UAE, offers expert guidance to help banks navigate these new regulations. Their locally based experts have analyzed each policy and formulated easy-to-understand snippets to create an audit and remediation plan for banks across the UAE.

Banks in the UAE can contact Qarar directly to schedule a meeting or request more information about their Model Risk Management services and the CBUAE regulations.

Contact Information

Phone: +971 4 375 9363 Email: smartsolutions@qarar.org