Vendor Risk Model
Vendor Risk Models are any risk quantification systems (including data and algorithms) that are in use by a firm / organization without having been developed in-house
Regulated financial institutions are subject to additional requirements in relation to vended risk models
ECB TRIM Requirements
The requirements to use an IRB approach, including own estimates and CCFs, apply also where an institution has implemented a rating system, or model used within a rating system, that it has purchased from a third party. To comply with this provision, institutions should ensure in such cases that all relevant internal information for model development and parameter calibration is taken into account.
In particular, long-run averages (LRAs) of default rates, loss given default (LGD) and CCFs based only on internal data should always be computed and considered for calibration. The institution remains responsible for the performance of the rating system or model.
- ECB guide to internal models - Credit Risk, Sep 2018