Model Risk Statement

Last Updated: December 5, 2024

Introduction

Ivory Consulting Corporation (“we” or “our” or “Ivory”) depends on the trust of our customers for our success and strives to provide products and services that are useful to our customers in running their businesses. We recognize that our customers in regulated industries, such as banks, may have additional requirements related to software they use. In particular, we understand that our bank customers are required to determine whether or not software applications they use are considered to be models (each a “Model”) pursuant to SR 11-7, Federal Reserve Supervisory Guidance on Model Risk Management (the “Guidance”).

This Statement is intended to provide assistance to our customers in conducting their own determination as to whether the Ivory Software is a Model under the Guidance.

Definition

For purposes of this Statement, the “Ivory Software” means our SuperTRUMP Desktop and/or any of the SuperTRUMP Server versions. This Statement relates solely to the Ivory Software. As a point of clarification, Ivory also offers web services - SuperTRUMP for Salesforce and SuperTRUMP Web - which are considered by Ivory to be services and not Models.

Guidance

The Guidance¹ defines a “Model” as:

“…a quantitative method, system, or approach that applies statistical, economic, financial, or mathematical theories, techniques, and assumptions to process input data into quantitative estimates.”

Crucially, according to this definition, the output from Models are “estimates.” If the software does not provide estimates but rather outputs that are certain, then the software is not a Model. As the Office of the Comptroller Model Risk Management handbook² offers:

“In contrast to a model, a quantitative tool not meeting the definition of a model described in the MRM Supervisory Guidance may apply deterministic rules or algorithms to process information and produce outcomes defined by the deterministic rules. For example, a tool can include spreadsheet calculations using algebraic formulas, such as summation, or values for which the output is certain. Outputs produced by quantitative tools that are not models generally do not rely on sensitivity analysis or other methods to develop quantitative estimates, forecasted outcomes, or predictions. The determination by a bank of whether a quantitative tool is considered a model is bank-specific, and a conclusion regarding the tool’s categorization should be based on a consideration of all relevant information.”

Please note that in software development, determinism means that, given the same input, a program always generates the same output while passing through the same intermediate states, no matter how many times we run the program.

Based on this, we believe that the Ivory Software is not a Model for purposes of the Guidance. The Ivory Software does not provide estimates; rather, it performs deterministic calculations using fixed formulas and algorithms. We follow generally accepted software development practices to minimize the risk of incorrect results.

Ivory also endeavors to develop and maintain the Ivory Software so that it is consistent with reasonable financial anaylsis principles and general requirements enacted by accounting and taxing authorities in certain jurisdictions where the Ivory Software is used by our customers.

Further, the Ivory Software has virtually no bias risk because it does not evaluate protected characteristics or introduce factors into calculations that are not specified by the customer.

Thus, Ivory’s interpretation is that the Ivory Software is an “analytical tool” and not a Model.

Customer Responsibilities

Ivory does not and cannot provide an authoritative interpretation of regulations, and this Statement and the Ivory Software should not be considered a substitute for our customers’ own professional discretion and judgment with respect to their compliance with applicable accounting, tax and legal requirements.

The customer is solely responsible for determining whether Ivory’s products meet their operational needs and are suitable for the customer’s purpose, including whether the Ivory Software constitutes a Model. We encourage our customers to consult their CPA, tax accountant, tax attorney or regulatory attorney while undertaking their analysis under the Guidance or otherwise with respect to their use of the Ivory Software.

However, upon our customer’s request, Ivory is willing to discuss the customer’s regulatory requirements and provide further information about how the Ivory Software functions in order to assist in our customer’s review process.

Further Considerations

In reviewing the Model vs. not Model question with some of Ivory’s customers, we note that, to our knowledge, these customers have not classified the Ivory Software as a Model. Instead, the Ivory Software is viewed perhaps as most analogous to a sophisticated spreadsheet workbook with superior visibility and change control.

In addition, as of the date of this Statement, the Ivory Software does not make use of artificial intelligence-based algorithms, and Ivory will not incorporate such algorithms in the Ivory Software without notice to our customers.

Effect on Customer Agreements

Nothing in this Statement constitutes any representation or warranty or otherwise expands the scope of Ivory’s liability or obligations under any customer agreement.