model risk

Definitions over time (1)

01/01/2025 – today applies on 12/11/2026 Article 4, Capital Requirements Regulation (CRR) Scope: Whole act

For the purposes of this Regulation, the following definitions shall apply:

‘model risk’ means the risk of loss resulting from decisions that are principally based on the output of internal models, due to errors in the design, development, parameter estimation, implementation, use or monitoring of such models, including the following: the improper design of a selected internal model and its characteristics; the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions; errors in the implementation of a selected internal model; incorrect mark-to-market valuations and risk measurement as a result of an error when booking a trade into the trading system; the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters; the untimely or ineffective monitoring or validation of model performance or of the predictive ability to assess whether the selected internal model remains fit for purpose;

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