Artificial Intelligence (AI) is transforming the banking industry—from credit scoring and fraud detection to customer service and portfolio optimization. But as banks increasingly rely on AI models to drive decisions, they also face a growing challenge: model risk.
Model risk is the potential for adverse outcomes due to errors in model design, implementation, or use. And with AI models being more complex, opaque, and dynamic than traditional statistical models, the stakes are higher than ever. That’s why model governance is no longer optional—it’s essential.
AI Models Are Powerful—But Not Infallible
AI models can uncover patterns and make predictions with impressive accuracy. But they can also:
Without proper governance, these risks can lead to financial loss, regulatory penalties, and reputational damage.
Global regulators—from the European Banking Authority to the US Federal Reserve—are tightening expectations around model risk management (MRM), especially for AI and machine learning. Banks must demonstrate that their models are:
Many banks still manage models in silos—risk, finance, marketing, and IT each using their own tools and processes. This fragmentation makes it hard to track model lineage, enforce policies, or respond to audits.
AI systems include data pipelines, decision logic, and human oversight. Effective governance must cover the entire system—not just the algorithm.
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A mid-sized bank deployed an AI model to automate credit approvals for small business loans. Initially, the model performed well, but over time, approval rates for minority-owned businesses dropped significantly. The issue went unnoticed until a regulatory audit flagged potential bias.
Upon investigation, the bank discovered:
The fallout included regulatory fines, reputational damage, and a costly remediation effort.
Had the bank implemented a robust model governance framework, it could have:
SAS Model Risk Management (MRM) is a comprehensive solution designed to help banks govern both traditional and AI models across the full lifecycle. Here’s how it supports robust model governance:
SAS MRM provides a unified repository for all models—statistical, machine learning, and AI—along with their metadata, documentation, and version history.
Out-of-the-box forms like MRM_AI_System_Assessment and MRM_EU_AI_Risk_Assessment help banks evaluate AI systems for ethical risk, regulatory compliance, and operational readiness.
From model candidate assessments to validation and deployment, SAS MRM automates governance workflows, ensuring consistency and auditability.
SAS MRM supports ongoing model monitoring, including KPIs, drift detection, and performance reviews. It also manages change requests and tracks model updates over time.
SAS MRM integrates seamlessly with SAS Model Manager, enabling banks to deploy, monitor, and govern models in production environments.
Governance isn’t just for models. SAS MRM also tracks non-model tools and processes that influence decisions, ensuring a holistic view of risk.
As banks embrace AI to stay competitive, they must also embrace the responsibility that comes with it. Model governance is the foundation for trustworthy, compliant, and effective AI systems. With SAS Model Risk Management, banks can build that foundation—ensuring that every model, from logistic regression to deep learning, is governed with rigor and transparency.
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