AI model risk management
AI model risk management in financial and capital markets is no longer a forward-looking compliance question. The U.S. Office of the Comptroller of the Currency and the Federal Reserve Board have both extended their SR 11-7 model risk management guidance to cover machine learning and generative AI systems, while the U.S. Securities and Exchange Commission has signaled scrutiny of algorithmic trading and robo-advisory models under existing examination priorities. Compliance teams at broker-dealers, asset managers, and bank holding companies are currently mapping their AI model inventories against validation and governance requirements before their next supervisory cycle.
Watch
- SR 11-7 applicability to generative AI: where regulators are drawing the line
- SEC exam staff flagging AI-driven suitability determinations in broker-dealer reviews
- EU Artificial Intelligence Act high-risk classification for credit scoring models, effective 2026
- Third-party AI vendor contracts: OCC expectations on model ownership and validation accountability
- Hong Kong Monetary Authority's model risk circular and its reach for APAC-licensed entities
Recent material activity in Financial & Capital Markets
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SEC proposes amendments to Exchange Act Rule 3b-16 expanding ATS definition to include DeFi protocols
The SEC has proposed rule changes that would bring decentralized finance protocols under the regulatory umbrella of Alternative Trading Systems. The amendment targets platforms facilitating token swaps exceeding $50M dai…
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SEC enforcement action against crypto lending platform for unregistered securities offering
The Commission filed charges against a major crypto lending platform alleging the firm offered and sold crypto asset lending products that constituted unregistered securities. The complaint seeks disgorgement of $340M in…
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CFTC and SEC release joint statement on digital asset classification framework
The two primary federal financial regulators issued a joint interpretive statement providing guidance on when digital assets fall under securities law versus commodities law. The framework introduces a functional test ba…
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Federal Reserve announces enhanced supervisory expectations for banks with crypto asset exposure
The Board of Governors issued SR 26-4 establishing new supervisory expectations for state member banks engaging in crypto-related activities. Banks must now maintain dedicated risk management frameworks, capital reserves…
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SEC approves spot Ethereum ETF amendments allowing staking yield pass-through
The Commission approved amendments to existing spot Ethereum ETF registration statements permitting the pass-through of staking rewards to fund shareholders. The approval includes enhanced disclosure requirements and a 3…
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SEC Division of Examinations publishes 2026 priorities: crypto compliance tops the list
The SEC's examination division released its annual priorities letter placing crypto asset compliance, stablecoin reserves, and DeFi protocol governance as the top three examination focus areas for 2026. Registered invest…
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FINRA proposes new rules for broker-dealer crypto custody and customer protection
FINRA filed a proposed rule change establishing custody requirements for broker-dealers holding crypto assets on behalf of customers. The proposal requires segregated wallets, proof-of-reserves attestations, and $10M min…
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Federal Reserve Board publishes research paper on CBDC impact on commercial bank deposits
The Board published a staff research paper modeling the potential displacement of commercial bank deposits by a retail CBDC. The paper estimates 8-12% deposit migration in the first two years, with disproportionate impac…
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