Company: BCDRF
Filing Date: 2025-02-28
Form Type: 20-F
Source: 0000891478-25-000054
Chunk: 587

Company: Banco Santander, S.A.
Filing Date: 2025-02-28
Form: 20-F
Chunk 587
---
 measures for models managed by the Model Risk area and pinpoints needs for any models to be developed, reviewed or implemented during the year.

3. Development

In this phase, the Model unit helps strengthen risk management by developing models and using data according to existing regulatory requirements.

15 The subsidiaries’ local governance bodies (including the local executive risk committee — ERC — or equivalent) approve the plan for the models under their remit. At corporate level, the subsidiaries’ plans and global model plan are presented to the model approval forum (MAF) for review and to the ERC for approval.

Annual report 2024 549

| Contents |     | Business model and strategy |     | Sustainability statement |     | Corporate governance |     | Economic and financial review |     | Riskmanagementandcompliance |

This unit leads the development of models for all risk types, with the spotlight on complying with regulatory expectations (Internal Rating Based Approach — IRB —, IFRS9, Internal Model Approach — IMA —, and other models). To develop models, we have specialized local and global teams. The experts in each geography are responsible for the development of local models since they are well-versed in the particularities and needs of each unit, while the global experts define the modelling standards, develop global models and support the geographies on the application of these standards and on the development of their own models, where required.

Moreover, we use a boxification methodology that enables us to automate, standardize and maintain the quality of model development.

Throughout the year, we completed the final developments under the IRB Repair Program. Per supervisory requirements, we also delivered on the IRB strategy update, which sought to pursue the consistent use of IRB models in the Group’s units. We will execute this strategy in the coming years. We built on models for stress tests, climate change risk management, and others.

At Santander, we believe in innovation, such as the responsible use of machine learning and generative artificial intelligence. Our aim is to delve deeper into these new techniques by running process enhancement and simplification initiatives.

4. Internal validation

Independent model validation is a regulatory requirement and key feature of our model risk management and control.

A specialist unit that is totally independent from developers and users issues technical assessments of internal model suitability. These assessments are expressed through a rating that summarizes the model risk associated to it. Validation intensity and frequency are well-defined and risk-driven.

We have an unique validation approach led by the Single Validation Office, which strengthen the second line of defence