Perfect Money Risk Management Policy

STARTUP SMART DEVELOPMENT LTD, registered in Hamchaku, Mutsamudu, Autonomous Island of Anjouan, Union of Comoros, operating under the international financial license with registration number 15559, trading under the brand name Perfect Money, recognizes the importance of model risk management for making key business decisions. This policy is aimed at establishing the framework for Model Risk Management (MRM) and includes principles and procedures that will help effectively identify, manage, and control risks associated with the use of models.

Objective

1.1 Enhancing the security and reliability of operational activities.
1.2 Supporting strategic decision-making based on models.
1.3 Ensuring compliance with regulatory requirements and standards in the payment business sector.
1.4 Reducing the likelihood and severity of potential financial losses due to model errors.

Scope

2.1 This policy applies to all types of models used in Perfect Money, including those developed internally, as well as external and vendor models used for financial reporting and making key business decisions.

Main Principles of Model Risk Management

3.1 Identification and Classification of Model Risks: Identifying and inventorying all models used in the company with a risk ranking approach for each model.
3.2 Management: Strong governance involving the board of directors, promoting a culture of model risk management at all levels of the organization. The board of directors approves the MRM policy and appoints a responsible person for implementing and maintaining an effective risk management system.
3.3 Development, Implementation, and Use of Models: Ensuring a rigorous model development process with standards for their design, selection, and performance evaluation. Regular testing of data, model structure, assumptions, and model outcomes to identify, monitor, and mitigate limitations and weaknesses in models.
3.4 Independent Model Validation: Independent validation of models ensures effective verification of model development and use. The responsible person or body approving the models ensures that the recommendations for model improvement are followed.
3.5 Mitigating Model Risks: Developing policies and procedures for using model risk mitigation measures, including procedures for independent verification of model adjustments.

Identification and Classification of Model Risks

4.1 Definition of a Model

• A model is defined as a quantitative method, system, or approach used to process input data to evaluate real processes, forecast future outcomes, or make decisions.

4.2 Model Inventory

• All used models must be listed in a model registry. The registry includes a description of the model, purpose, owners, and the risk level associated with each model.

4.3 Risk Classification

• Models are classified by risk level based on the potential impact of their misuse or error. Classification includes high, medium, and low-risk levels

Governance and Model Development

5.1 Role of the Board of Directors

• The board of directors is responsible for approving the model risk management policy and ensuring its compliance at all levels of the organization. The board appoints a person responsible for implementing and maintaining the MRM system.

5.2 Appointment of a Responsible Person

• A person responsible for model risk management is appointed, responsible for executing and controlling the MRM policy. This person must also regularly report to the board of directors on the status of risk management.

5.3 Policies and Procedures

• Developing and documenting MRM policies and procedures, including processes for identifying, developing, testing, validating, and monitoring models.

5.4 Model Development, Implementation, and Use
Model Development Process:

• Establishing standards for model design and development, including data selection, model structure development, and testing.

5.5 Model Testing

• Regular testing of models to verify the accuracy of input data, assumptions, and outcomes. All tests and their results must be documented.

5.6 Monitoring and Improvement

• Continuous monitoring of model performance and making adjustments if necessary. Model updates must go through the approval and testing process.

5.7 Independent Model Validation
Validation Process:

• Models are validated by independent groups or individuals not involved in their development. The validation process includes verification of data, assumptions, and model outcomes.

5.8 Recommendations and Execution

• Recommendations for model improvement issued during the validation process must be implemented before the models are used. The responsible person ensures these recommendations are followed.

5.9 Mitigating Model Risks
Risk Mitigation Measures:

• Developing procedures for using model adjustments and other risk mitigation measures when models do not show expected results.

5.10 Independent Verification

• Independent verification of all model adjustments and risk mitigation measures to ensure their validity and effectiveness.

Self-Assessment and Corrective Action Plan

6.1 Self-Assessment and Corrective Action Plan
Initial Self-Assessment:

• All departments using models must conduct an initial self-assessment in accordance with MRM principles. The self-assessment includes checking the compliance of current models and procedures with established standards.

6.2 Corrective Action Plan

• Based on the results of the self-assessment, a corrective action plan is developed to address identified deficiencies. The responsible person is accountable for the implementation and monitoring of the plan.

6.3 Regular Assessment and Update
Annual Self-Assessment:

• An annual self-assessment should be conducted to evaluate the effectiveness of implemented procedures and identify new risks. The results of the assessment and the updated corrective action plan should be presented to the board of directors.

6.4 Continuous Monitoring

• Continuous monitoring of models and regular updates of self-assessments based on changes in business, technology, or regulatory requirements.

6.5 Board and Senior Management Responsibility
Board of Directors Involvement:

• The board of directors must be actively involved in the model risk management processes, ensuring oversight and control over the effectiveness of the MRM policy.

6.6 Reporting and Control

• Regular reports on the status and effectiveness of model risk management should be presented to the board of directors and senior management. These reports include self-assessment results, corrective action plans, and progress in their implementation.

External Auditors Interaction

7.1 Interaction with External Auditors
Role of External Auditors:

• External auditors play a key role in assessing the effectiveness of model risk management. They should regularly review MRM processes and present their findings and recommendations to the board of directors and senior management.

7.2 Interaction and Reports

• Interaction with external auditors should be regular and include discussions of all aspects of MRM. Auditor reports should be used to improve and strengthen risk management processes.

7.3 Innovation and New Technologies
Managing AI and Machine Learning Risks:

• When using artificial intelligence (AI) and machine learning (ML) technologies in modeling, specific risks associated with these technologies must be considered.
• All AI and ML models should undergo thorough verification and validation.

7.4 Continuous Improvement

• The company should continuously improve its risk management processes, considering new technologies and methods. This includes updating the MRM policy and training employees.