Certified ≠ Validated: Know the Difference

If your institution relies on vendor models, this might save you from costly missteps and regulatory headaches.

🛑 Model Certifications ≠ Model Validations!

Wanted to clarify something for the banks, credit unions, and fintechs out there navigating model risk:

A model certification of a vendor model is important and a valuable starting point. It gives users confidence that the core code and calculations perform as intended, under typical conditions. For vendors, it’s a seal of quality. For users, it’s a necessary and helpful baseline - especially when it comes time for a model validation.

In fact, vendor certifications can actually save institutions time and money by reducing the depth of independent testing needed in certain areas - particularly around code/algorithm mechanics or calculation logic.

But here’s the catch (and it’s a big one):

👉 A Certification is not a validation.

A certified calculation engine is only part of the equation. Each institution configures, feeds, and uses the model differently - with unique data, assumptions, policies, and risk profiles. That means every implementation is different, and it needs to be validated in context.

A proper model validation dives into:

• How the model is configured for your institution.

• The quality and appropriateness of your data inputs.

• Whether assumptions match your balance sheet and strategy, and are well supported.

• How results are used in decision-making, reporting, and governance.

You wouldn’t buy a car just because it passed the factory inspection - you’d still want a test drive.

Same goes for models.

💬 Have you seen a model where the certification didn’t match how it performed in your environment?

Vendor certifications help and are very important. But institution-specific model validations are what regulators (and sound risk management) require.

If you’re a financial institution unsure how to balance both, or how to leverage a certification in your next validation - happy to chat.

And if you are a model vendor (ALM, CECL, etc.), or a fintech with a credit decisioning model, happy to chat as well!