This page focuses on the challenges faced by regulatory (government) agencies, and why they turn to us.

Regulatory mandates include:

• Investor and consumer protection
• The orderly functioning of financial markets
• Minimizing the frequency and severity of systemic events

To meet these mandates, regulatory agencies must have the skills and tools to evaluate the risk management systems and practices of their constituents. These are non-trivial tasks, given the many reasons such systems fail, including:

• Use of the wrong model(s)

- models are inappropriate for the asset class, country/region, or time period

• Use of flawed model(s)

- there are errors in data, algorithm(s), or implementation

• Incomplete or flawed processes and work flow due to:

- insufficient oversight, checks, and balances, or excessive reliance on model outputs at the expense of expert judgment and other external factors

• Incomplete or flawed ‘people’. That is, misinterpretation of model results by people due to:

- insufficient training, lack of interest, incentive misalignment, or fraud

Why Regulators Turn to Us

Governmental agencies find our services especially useful for:

• Pursuing knowledge which may be useful in identifying the potential risk management flaws listed above
• Gaining a more objective understanding of the limitations of third party tools utilized by their constituents
• Understanding the implications of those limitations for regulatory guidance, rules, and actions
• Anticipating potential systemic dangers arising from (mis)use of particular vendor solutions
• Deciding whether existing vendor tools may be useful to regulatory oversight or surveillance efforts

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