Regulatory compliance in financial services isn't just about following rules – it's about understanding them deeply enough to implement them effectively. When I first started working with the OCC's model validation guidance, as part of the Model Risk Management document, I felt a bit overwhelmed. The challenge was how to design a product that could effectively help clients achieve model validation for sanctions screening following the OCC's framework. The complexity wasn't just in the technical requirements; it was in translating regulatory language into practical, implementable solutions that were accessible to compliance officers and their teams without requiring deep modeling and development expertise – a solution that transforms complexity into clarity.
The OCC's Model Risk Management guidance lays out a comprehensive and general framework for model validation. It is built to guide evaluation on models to address different types of risks. We needed to focus on Compliance risk as our focus was on sanctions screening. Transforming this guidance into practical tools specific to the challenges of sanctions screening is no small feat. Early in our journey, we spent countless hours parsing through the documentation, understanding not just the what, but the why behind each requirement. The framework calls for three core elements: evaluation of conceptual soundness, ongoing monitoring, and outcomes analysis.
As with any specific model, what you do to achieve each component is unique to the risk the model is addressing. And then we focused on the intrinsic characteristics of what makes a screening model robust for daily operations in a world where sanctions are changing (almost) on a daily basis.
The challenge that many financial institutions face is clear: limited resources, technical complexity, and the need to demonstrate thorough validation without disrupting day-to-day operations. Compliance officers needed a way to satisfy these requirements without becoming modeling experts themselves. This realization shaped our entire approach to developing our solution.
As we dove deeper into the specifics of sanctions screening model validation, we discovered that the real challenge lay in balancing regulatory rigor with practical implementation. We were able to build on top of our strong core of sanctions screening testing scenarios and evaluate how models handle name matching, how they process different attributes like dates of birth or addresses, and how they manage the critical balance between false positives and potential misses when it is expected to match on name variations across different languages.
Our Solution: Breaking Down the Components
For conceptual soundness evaluation, we leveraged the testing scenarios we had already built into the product. These scenarios:
- Evaluate the model's list update capabilities
- Assess jurisdiction coverage
- Test name and attribute matching capabilities
- Perform comprehensive accuracy analysis
We expanded our datasets to stress test each scenario and trained an AI to evaluate model documentation, ensuring design and implementation meet requirements. Additionally, we made it easy for institutions to configure acceptance criteria that align with their specific risk appetite.
To achieve effective ongoing monitoring, we enhanced our system's capabilities to:
- Schedule and execute tests automatically
- Compare results against consistent benchmarks
- Enable users to specify validation iterations over custom time periods
- Provide flexible benchmarking options, including Yanez's evolving standard or alternative industry models
For outcomes analysis, we created tools that efficiently compare model results against production data, providing clear insights into real-world performance. The entire process is designed to produce thorough documentation that clearly demonstrates compliance with regulatory requirements.
The Power of Automation
The real power of our solution lies in how it automates the complex and time-consuming aspects of model validation. Based on the scope and configuration you choose, our system automatically generates statistically meaningful datasets specifically designed for your validation scenarios. These datasets are seeded from relevant sanctions lists and adapted to test specific model capabilities.
The system coordinates the execution of all required tests, running most concurrently while managing scheduled monitoring iterations over time. Results are presented in an easy-to-understand format, organized around the core OCC components: Soundness, Monitoring, and Outcomes Analysis. When complete, the system generates a comprehensive validation report ready for regulatory review.
Proven Results and Future Commitment
Early adopters of our testing solution are already seeing significant benefits. What previously took hundreds of hours of effort can now be completed in days. More importantly, compliance teams can demonstrate thorough model validation without becoming technical experts. The automated process ensures consistent, comprehensive validation while freeing up valuable resources for other critical tasks.
As more institutions use our validation solution, we continue to refine and enhance its capabilities. We're committed to evolving our platform as regulatory requirements change and new challenges emerge. Our goal remains constant: to make model validation accessible, efficient, and thorough for compliance teams of all sizes.
The journey from first encountering the OCC's model validation guidance to developing an automated solution has been both challenging and rewarding. We've transformed complex regulatory requirements into accessible, practical tools that help compliance teams validate their sanctions screening models with confidence. By automating the technical aspects while maintaining regulatory rigor, we've made thorough model validation achievable for institutions of all sizes.
Ready to Transform your Model Validation Process?
Download our detailed white paper to learn more about our approach to sanctions screening model validation and how we've implemented the OCC framework. Join us in making model validation more accessible, efficient, and effective.