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6 Welcome to the ACAMS Web Seminar Model Risk Management across All Financial Crime Applications 6

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8 Speakers Rich Landreman Citigroup Matthew Long Oracle Don Ryu Oracle

9 Safe Harbor Statement The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle s products remains at the sole discretion of Oracle.

10 Program Agenda Model Risk Management MRM for Financial Crime and Compliance

11 What is Model Risk Management?

12 Model Risk Management Fundamentals Governance Inventory Model Risk Management Ongoing Monitoring Inventory Governance Monitoring Measurement

13 Formal Organization Written Policies Model Definitions Development Standards Governance Governance Inventory Monitoring Measurement

14 Inventory Production Models Development Models Reporting Work Flow Status Change Management Governance Inventory Monitoring Measurement

15 Model Risk Measurement What is a compliance exposure? How to measure model losses? What if? Worst case scenario? Positive effects of model validation Governance Inventory Monitoring Measurement

16 Ongoing Monitoring Frequency Relevance Materiality Governance Inventory Monitoring Measurement

17 MRM for Financial Crime and Compliance

18 Q: Are AML Processes Models or Tools? Definition High Risk or Low Risk The term model refers to a quantitative method, system or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates. Key Considerations Should an AML process be considered a Model or Tool? What are the defining characteristics as a model and/or tool? If a Model: What characteristics would make it be considered a Higher Risk Model? What characteristics would make it be considered a Lower Risk Model? - OCC

19 Q: How often should these models be validated? Definition Banks should conduct a periodic review at least annually, but more frequently if warranted of each model to determine whether it is working as intended and if the existing validation activities are sufficient. Key Considerations Do different models require different review cycles? What determines this cycle? Transaction Monitoring Know Your Customer - OCC Sanctions / Watch List How does internally built model vs. 3 rd party model validation differ?

20 Q: Who should perform the validation? Definition To what standards? Validation involves a degree of independence from model development and use. Model quality can be measured in many ways: precision, accuracy, discriminatory power, robustness, stability, and reliability, to name a few. Key Considerations - OCC Who should conduct validation given the requirement for independence? What should be the role of the business, IT, corporate, etc? What are the challenges in implementing a consistent MRM process at a global/enterprise level? How do you quantify effectiveness in identifying money laundering behaviors?

21 Q: How should financial institutions interpret the threshold setting and pre-production tuning requirements? Definition Monitoring begins when a model is first implemented in production systems for actual business use Banks should design a program of ongoing testing and evaluation of model performance along with procedures for responding to any problems that appear. - OCC Key Considerations How are financial institutions conduction pre-production validation? How do you define the validation criteria? With what data? Is it acceptable to go into production with expectations to tune in production? In monitoring new products, jurisdictions, line of businesses, etc.

22 Summary MRM Benefits Beyond Regulatory Box Ticking Proof points build confidence in decisions over time internally & externally Proven best practices more readily accepted internally & externally Increase awareness of decisions/impacts through validation don t keep learning the same lessons Source : AML model risk management and validation, 2013 Ernst & Young LLP. Improved decision making Continuous improvement & enhancements Reduced risk and impact of remediation MRM program increases detection speed of model misuse or error Reduce risk and costs (financial and reputational) of remediation and look back projects Formalized MRM process facilitates evidence based discussions Leads to regular reviews, improvements/enhancements to models and downstream business decisions

23 Join the Conversation Online Keep up with Financial Services topics and trends Access Financial Services content easily, including events, webcasts, white papers and more Engage with Oracle in FS Experts Share knowledge and experiences at your convenience with your peers facebook.com/oraclefs blogs.oracle.com/financial services twitter.com/oraclefs #Oracle FS youtube.com/oraclefs

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25 If you have additional questions for today s experts, or suggestions for future web seminars, please send those to: training@acams.org Thank you for joining us today! 25

26 Future Web Seminars NOV 19 NOV 20 NOV 25 Improving Audit Testing of Anti-Bribery and Corruption Functions Level: Basic/Intermediate Noon to 2:00pm EDT Changing the AML game from reporting to rejecting suspicions? Level: All Noon to 2:00pm EDT Case Study: Dissecting the Inner Workings of Recent Ponzi Schemes Level: Basic/Intermediate Noon to 2:00pm EDT