Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—Fed’s Bowman urges FSB to consider proportional AI controls, (Jul 7, 2026)

By Lauren Bikoff, MLS

Lower-risk uses of AI should draw a lighter supervisory and regulatory touch, the Fed Governor said, as the Financial Stability Board gathers comments for a 2026 final report.

Federal Reserve Board Vice Chair for Supervision Michelle Bowman urged global regulators to refine the Financial Stability Board’s (FSB) draft guidance on responsible artificial intelligence (AI) use in finance, emphasizing materiality, proportionality, and support for innovation. Speaking at an FSB virtual outreach event, Bowman said feedback should identify practices that may be too prescriptive, fail to reflect institutional size, complexity, and risk profile, or need more clarity before the report is delivered to the U.S. G-20 presidency later in 2026. Bowman also encouraged commenters to flag areas where sound practices may be too prescriptive or may not account for institutional size, complexity, and risk profile. In addition, she requested input on material risks the report may not address and on areas where additional clarity would help institutions manage AI-related risks more effectively.

Bowman said a central element of managing AI risks is understanding specific use cases, and financial institutions should be clear about how they use AI and whether the use is material to business operations or legal and regulatory obligations. Actual use and materiality, in her view, should drive the type and intensity of governance and controls applied to a particular deployment. This idea reflects the Fed's observation that banks of different sizes are using AI more often and in varied ways. Bowman said the Federal Reserve has monitored bank AI use for nearly a decade and has seen a noticeable increase in AI use by banks of all sizes. The Fed’s focus, she said, has been supporting institutions that want to innovate responsibly by using AI tools in their operations.

Proportionality was Bowman's main limiting principle. “Our focus is on promoting innovation at financial institutions of all sizes, not just the largest ones,” she noted. Bowman said considerations for larger institutions using AI in complex applications are not appropriate for smaller institutions with less complex AI uses. The same logic supports a lighter touch for lower-risk uses while preserving appropriate safeguards for higher-risk applications and material risks.

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