Over-reliance on risk models a danger, says Lawrence

Financial institution risk managers must be wary of relying too heavily on risk models and systems, according to Mark Lawrence, chief risk officer at Australian bank ANZ, speaking at Risk Waters Group’s third annual Risk Australia conference in Sydney earlier this week.

An over-reliance on models can lead to errors when calculating the levels of risk within an organisation, and the implications of model risk are still not fully understood, Lawrence said.

“The output of models is often wrong, and is always to be distrusted,” said Lawrence. “Models should rather serve as a beginning for conversation.”

Despite the increased sophistication of risk modelling and measurement systems on the market, the role of judgement is still primary, he said. “If you put garbage into a system, you get garbage out, so the role of judgement will always be important.”

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