Model risk arises from inaccuracies in risk models (e.g., for credit scoring or VaR), leading to deviations between predicted and actual results, as noted at Diamond Bank’s Risk Committee. To effectively govern this, the Board should implement measures aligned with BoG’s Corporate Governance Directive 2018 and Basel II/III principles, drawing from my experience in risk management at GCB Bank where model failures contributed to losses during DDEP. Structured measures include:

• Establish a Dedicated Model Risk Management Framework (MRMF): Develop policies defining model lifecycle (development, validation, monitoring), with clear ownership by the Chief Risk Officer. Integrate into EWRM, requiring independent validation by a Model Validation Unit, as practiced in Stanbic Ghana to catch biases.
• Enhance Board and Committee Oversight: The Risk Committee must mandate regular model audits, reviewing key risk indicators (KRIs) quarterly. Implement thresholds for backtesting; if deviations exceed 5-10%, trigger recalibration. Reference global failures like Merrill Lynch’s subprime models.
• Invest in Data Quality and Technology: Ensure models use accurate, timely data from finance, complying with Data Protection Act. Board to approve IT investments for advanced tools (e.g., machine learning for dynamic modeling), addressing Ghana’s fintech regulations under Act 987.
• Foster Training and Culture of Challenge: Require executive training on model risks and whistleblowing. Promote ethical standards to prevent overrides, aligning with Code of Ethics on due diligence.
• Regulatory Compliance and Reporting Enhancements: Align with BoG’s risk-based supervision, submitting model reports for approval. Conduct stress tests under various scenarios, ensuring transparency to avoid sanctions like those in the 2017 cleanup.
• Continuous Monitoring and Remediation: Set up a dashboard for real-time deviation tracking; remediate via sensitivity analysis. Use Audit Committee for assurance, incorporating external experts for benchmarks.

These measures will mitigate model risks, enhancing decision-making, capital efficiency, and stakeholder confidence for Diamond Bank’s resilience.