Convergence Under Automation: Applying the Concentric Resilience Mechanism and Hexagonal Governance Architecture to AI Governance in Finance and Model-Risk Environments
Description
Financial institutions increasingly use models and artificial intelligence across credit, trading, portfolio construction, fraud detection, anti-money-laundering monitoring, customer service, operational risk, cybersecurity, and internal decision support. These uses can improve efficiency and risk detection, yet finance presents a distinctive governance problem: a model or AI system can be individually validated, locally profitable, and procedurally compliant while still contributing to aggregate instability when multiple actors rely on similar assumptions, data, vendors, signals, or optimization objectives. This paper applies the Concentric Resilience Mechanism (CRM) and its governance-facing Hexagonal Governance Architecture (HGA) to that problem. It argues that responsible financial AI governance requires more than model validation or lifecycle documentation. It requires a relational capacity to detect when local optimization begins to separate from enterprise and system-wide integrity; preserve the premise, evidence, and context of a developing event; maintain independent corrective authority; constrain execution when convergence becomes boundary-critical; and distinguish recovery of technical function from legitimate restoration and reintegration. The paper translates the CRM-HGA architecture into finance-specific governance questions, evidence families, failure-boundary indicators, runtime intervention conditions, and restoration criteria. Current supervisory and policy developments provide an important external context. The United States interagency model-risk guidance was revised in April 2026 toward a tailored, risk-based approach and explicitly recognizes aggregate model interactions, while excluding generative and agentic AI from its formal scope. The Financial Stability Board has identified market correlations, third-party concentration, cyber risk, and model-governance challenges as AI-related financial-stability vulnerabilities and, in 2026, proposed 12 sound practices for financial institutions’ responsible AI adoption. The Monetary Authority of Singapore’s SAFR work further illustrates the emerging importance of runtime controls for agentic finance. CRM-HGA does not claim to replace these regimes. Its contribution is to connect model risk, convergence risk, contextual fidelity, corrective authority, bounded intervention, and restorative verification within one sector-translation architecture.
Files
CRM HGA Applied Sector Paper 01 Finance V1 A Franklin.pdf
Additional details
Related works
- Is derived from
- Preprint: 10.5281/zenodo.21970315 (DOI)
- Preprint: 10.5281/zenodo.21983352 (DOI)
- Preprint: 10.5281/zenodo.22051249 (DOI)
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