SR 11-7 gives three elements of validation: evaluation of conceptual soundness, ongoing monitoring, and outcomes analysis1. The Financial Services Agency's principles call for validation independent of the first line. It is basically done by the second line, and when the first line does it, the second line evaluates the result. Independent validation includes validation before first use, validation at a material change, and revalidation after the model is in use2.
On this site, this work of checking the model itself is called "model validation" and is kept distinct from the day-to-day check of market values.
Notes
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Board of Governors of the Federal Reserve System and Office of the Comptroller of the Currency (OCC), "Supervisory Guidance on Model Risk Management" (April 4, 2011), "V. Model Validation", pages 9–11. ↩
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Financial Services Agency, "モデル・リスク管理に関する原則" (Principles for Model Risk Management) (November 12, 2021), Principle 6, pages 11–13 (in Japanese). ↩