Model Risk
Also called: Model Risk Management
Model risk is the risk that decisions taken on incorrect outputs from a model cause financial, regulatory or reputational harm. Model risk management, the discipline of containing it, is long established in banking: validating that a model does what it claims, monitoring it over time and documenting it for regulators. The principle is the same for AI, but the stakes are higher, because models now make more decisions, faster, and in places where the logic is harder to inspect.
In practice
A credit-scoring model that performs well at launch can slowly degrade as economic conditions shift, making confident decisions on assumptions that no longer hold. Where models touch pricing, credit or hiring, the governance question is who owns validation and how often it actually happens, not whether a policy exists on paper.