What is model risk audit?

Model Risk Audit is a specialized process within financial institutions that involves evaluating and reviewing the controls, governance, validation, and use of quantitative models. These audits help ensure that models used for decision-making, risk management, and regulatory reporting are accurate, reliable, and comply with internal policies as well as regulatory standards. The primary goal is to identify and mitigate risks associated with model errors, misuse, or inadequate validation, thereby supporting the overall integrity of the institution’s risk management framework.