AI Governance for Institutional Readiness in Finance
TL;DR
This work proposes a four-layer framework (Policy, Engineering, Composition, Systemic) grounded in two distinct kinds of evidence, kept explicitly separate, and provides a 90-day implementation sequence spanning trading and payments/customer-facing systems.
Abstract
Agentic AI is gaining acceptance in asset management, but governance has not kept pace: 88\% of surveyed finance professionals report no operational governance framework for agentic AI, and only 24 of 75 large U.S. money managers disclosing AI use in Form ADV filings report a formal governance policy. We argue this gap is architectural: governance built for static validation does not survive continuously retrained agentic policies. We propose a four-layer framework (Policy, Engineering, Composition, Systemic) grounded in two distinct kinds of evidence, kept explicitly separate: two calibrated synthetic illustrations (a regret-covariance drift monitor; a crowding simulation showing joint drawdown risk rising from 39.2\% to 79.3\%), and three real, documented cases (a deployed LLM-embedding trading strategy, a \$45 billion discretionary fund's forced-deleveraging blowup, and a tribunal ruling holding an airline liable for its chatbot). The synthetic examples demonstrate computability from observable data; the cases demonstrate that the failure modes are not hypothetical. We provide a 90-day implementation sequence spanning trading and payments/customer-facing systems.