The Agentic Regulator: Risks for AI in Finance and a Proposed Agent-based Framework for Governance
By: Eren Kurshan, Tucker Balch, David Byrd
Potential Business Impact:
Keeps AI trading safe and fair.
Generative and agentic artificial intelligence is entering financial markets faster than existing governance can adapt. Current model-risk frameworks assume static, well-specified algorithms and one-time validations; large language models and multi-agent trading systems violate those assumptions by learning continuously, exchanging latent signals, and exhibiting emergent behavior. Drawing on complex adaptive systems theory, we model these technologies as decentralized ensembles whose risks propagate along multiple time-scales. We then propose a modular governance architecture. The framework decomposes oversight into four layers of "regulatory blocks": (i) self-regulation modules embedded beside each model, (ii) firm-level governance blocks that aggregate local telemetry and enforce policy, (iii) regulator-hosted agents that monitor sector-wide indicators for collusive or destabilizing patterns, and (iv) independent audit blocks that supply third-party assurance. Eight design strategies enable the blocks to evolve as fast as the models they police. A case study on emergent spoofing in multi-agent trading shows how the layered controls quarantine harmful behavior in real time while preserving innovation. The architecture remains compatible with today's model-risk rules yet closes critical observability and control gaps, providing a practical path toward resilient, adaptive AI governance in financial systems.
Similar Papers
AGENTSAFE: A Unified Framework for Ethical Assurance and Governance in Agentic AI
Multiagent Systems
Makes AI agents safer and more trustworthy.
A Safety and Security Framework for Real-World Agentic Systems
Machine Learning (CS)
Makes smart computer helpers safer to use.
On the Regulatory Potential of User Interfaces for AI Agent Governance
Computers and Society
Makes AI agents safer by controlling how they look and work.