Model Validation: A Strategic and Regulatory Imperative in Zambia

In today’s data-driven financial landscape, models are everywhere.
They shape credit decisions, influence capital allocation, inform risk appetite, and support regulatory submissions. But models are only as good as the assumptions, data, and logic they’re built on.

That’s where model validation becomes critical—not just as a control, but as institutional due diligence.

Regulatory Context in Zambia

Zambia’s Banking and Financial Services Act (BFSA) No. 7 of 2017 and the Bank of Zambia’s Risk Management Guidelines call for strong, independent risk oversight—but as the regulatory framework evolves, expectations are becoming more explicit.

Under the Basel II framework, which Zambia is in the process of adopting, model validation isn’t just good practice—it’s mandatory for banks using the Internal Ratings-Based (IRB) approach. Institutions are expected to:

• Conduct regular, independent performance reviews of models, including Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD)

• Monitor model stability and predictive accuracy

• Test statistical and logical relationships

• Ensure model developers are not also validators

Compliance under Basel II demands clear evidence that models are not just well-documented—but independently challenged, benchmarked, and refined.

What’s at Stake

Institutions relying on flawed or untested models are not just exposed to technical error—they’re vulnerable to strategic drift, reputational risk, and regulatory breaches.

Weak models embed risk into core processes—quietly, consistently, and invisibly.
Strong validation disciplines reveal those risks before they crystallise.

It’s not about proving a model works once—it’s about ensuring it holds over time, in practice, under stress, and with changing data.

Glovedale’s Contribution

At Glovedale House, model validation is more than a procedural review—it’s a strategic safeguard.

We:

• Assess assumptions, architecture, calibration, and governance

• Benchmark models against both business reality and regulatory requirements

• Provide clear, actionable recommendations—not technical theatre

Our reviews are designed to strengthen—not stall—decision-making. We work independently, rigorously, and with a clear mandate: to ensure that critical models don’t just exist, but perform when it matters.

Validation isn’t an optional exercise. It’s a core test of institutional credibility.