Reserve Bank issues draft Regulatory Principles for Management of Model Risks in Credit

The Reserve Bank had issued the draft ?Regulatory Principles for Management of Model Risks in Credit? on August 05, 2024, with a view to strengthen governance and risk management practices relating to use of models in credit, followed by report of the Committee on Framework for Responsible and Ethical Enablement of Artificial Intelligence (FREE-AI) on August 13, 2025. Considering model usage has expanded significantly and regulated entities are increasingly using models, including those employing Artificial Intelligence / Machine Learning (AI / ML), across various business and decision-making processes; weaknesses in their governance, oversight, risk management and controls may expose the regulated entities to financial, operational, compliance, and reputational risks. Recognising this, the Reserve Bank has now released draft ?Guidance on Regulatory Principles for Model Risk Management? which provides holistic and broad regulatory expectations for model risk management across the model lifecycle. The Guidance is applicable to all models used by regulated entities, including third party models and models employing AI / ML.

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