A model risk manager is reviewing a newly developed credit risk model. According to SR 11-7 guidance, which activity represents the MINIMUM acceptable validation requirement before a model enters production?
Select an answer to reveal the explanation.
Short Explanation
Here's the deal — SR 11-7 says model validation needs conceptual soundness review, outcome analysis, and ongoing monitoring before production. User acceptance testing by the business line isn't independent validation, so it doesn't meet the minimum.
Full Explanation
The correct requirement is a conceptual soundness review, outcome analysis, and ongoing monitoring plan. SR 11-7 establishes that model validation must include conceptual soundness evaluation, reviewing the model's theory and design, outcome analysis, including backtesting and benchmarking, and an ongoing monitoring plan. User acceptance testing by the business line that owns the model is insufficient because it is not independent validation. External audit by a Big 4 accounting firm is not required by SR 11-7 as a minimum. Regulatory pre-approval submission to the OCC or Federal Reserve is not a general pre-approval requirement for all models.