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GovernanceModel risk classification

Model tiering

Classifying models by risk level, based on factors such as financial materiality, complexity, and reliance placed on the model's output, so that validation depth, frequency, and monitoring intensity scale with actual risk rather than applying uniformly across every model in the inventory.

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How the term is used in model risk management

Classifying models by risk level, based on factors such as financial materiality, complexity, and reliance placed on the model's output, so that validation depth, frequency, and monitoring intensity scale with actual risk rather than applying uniformly across every model in the inventory. The exact implementation varies by institution, model type, risk rating, and governing framework. Use the linked regulatory pages and buyer guides below for scope-specific requirements.

Related glossary terms

Model inventoryModel riskModel governance

Guides and frameworks that use this term

GuideModel Risk Management FrameworkA model risk management framework is the documented set of policies, roles, and processes an institution uses to identify, tier, govern, and validate its models. Under SR 26-2, a sound framework covers model development and use, independent validation, and governance and controls, scaled to the institution's size and model risk profile rather than applied uniformly.FrameworkPRA SS1/23PRA SS1/23 is the Bank of England Prudential Regulation Authority's supervisory statement setting out five model risk management principles for UK banks with internal model approval for credit, market, or counterparty credit risk. It took effect May 17, 2024 and explicitly extends to risks from AI and machine learning modeling techniques.FrameworkSR 11-7SR 11-7 was the Federal Reserve's foundational 2011 guidance on model risk management, covering model development, implementation, use, validation, and governance. It was formally rescinded on April 17, 2026 and replaced by SR 26-2, though SR 11-7's core principles, including effective challenge and independent validation, carried forward into the new guidance.