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Validation Techniques

Conceptual soundness

An evaluation of the quality of a model's design and construction, including whether its underlying theory, assumptions, data, and methodology are appropriate for its intended business use. Conceptual soundness review is one of the three core techniques of independent model validation, alongside ongoing monitoring and outcomes analysis.

Last updated: Last reviewed by: Model Risk Directory editorial team

How the term is used in model risk management

An evaluation of the quality of a model's design and construction, including whether its underlying theory, assumptions, data, and methodology are appropriate for its intended business use. Conceptual soundness review is one of the three core techniques of independent model validation, alongside ongoing monitoring and outcomes analysis. The exact implementation varies by institution, model type, risk rating, and governing framework. Use the linked regulatory pages and buyer guides below for scope-specific requirements.

Related glossary terms

Model validationOutcomes analysis

Guides and frameworks that use this term

GuideModel Risk ValidationModel risk validation is the independent testing of a specific model's conceptual soundness, ongoing performance, and outcomes, performed by staff or a third-party firm genuinely separate from that model's development. It is the 'effective challenge' function required under SR 26-2 and SR 11-7, distinct from broader model risk management program design.