AI Glossary
Model Risk Management
What is Model Risk Management?
A financial services framework for identifying, assessing, and controlling risks arising from the use of AI and quantitative models in decision-making. Rooted in US banking guidance (SR 11-7) and increasingly applied to AI systems globally. MRM requires model validation, performance monitoring, and clear governance over who can approve model deployment.
Example in practice
A risk manager at an investment bank who commissions an independent validation of their AI credit-scoring model — testing it for bias, accuracy, and sensitivity to data drift before regulatory submission — is performing model risk management.
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