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Control 2.6: Model Risk Management (OCC Bulletin 2026-13 / SR 26-2 — formerly OCC 2011-12 / SR 11-7)

Control ID: 2.6
Pillar: Management
Regulatory Reference: OCC Bulletin 2026-13 (formerly OCC Bulletin 2011-12) (Sound Practices for Model Risk Management), Federal Reserve SR 26-2 (formerly SR 11-7) (Supervisory Guidance on Model Risk Management), FDIC FIL-22-2017 (FDIC adoption of OCC Bulletin 2026-13 (formerly OCC 2011-12)), FFIEC IT Examination Handbook (Management; Information Security), FINRA Rule 3110 (Supervision), FINRA Rule 4511 (Books and Records), FINRA RN 24-09, SEC Rules 17a-3 / 17a-4 (Recordkeeping for model artifacts and validation evidence), SOX Sections 302 / 404 (Internal Controls over Financial Reporting), GLBA 501(b) (Safeguards Rule), NYDFS 23 NYCRR 500 (where AI agents touch covered customer information)
Last UI Verified: May 2026
Governance Levels: Baseline / Recommended / Regulated

Regulatory update — Fed SR 26-2 / OCC 2026-13 superseded their predecessors (formerly SR 11-7 / OCC 2011-12) on April 17, 2026

On April 17, 2026, the Federal Reserve, OCC, and FDIC jointly issued Federal Reserve SR 26-2 — Revised Guidance on Model Risk Management and OCC Bulletin 2026-13 — Updated Interagency Guidance on Model Risk Management. These instruments expressly supersede and rescind the predecessor guidance now referenced as Federal Reserve SR 26-2 (formerly SR letter 11-7, April 4, 2011) and OCC Bulletin 2026-13 (formerly OCC Bulletin 2011-12, "Sound Practices for Model Risk Management"), respectively, along with related items including SR 21-8 / OCC Bulletin 2021-19 (Interagency Statement on MRM for BSA/AML systems), the OCC's "Model Risk Management" booklet of the Comptroller's Handbook, and OCC Bulletin 1997-24 (Credit Scoring Models). The original sr1107.htm URL no longer resolves on the Federal Reserve site.

What carried forward. SR 26-2 / OCC 2026-13 retains the conceptual framework published in Federal Reserve SR 26-2 (formerly SR 11-7) — model definition, model inventory, independent validation, effective challenge, ongoing monitoring, outcomes analysis, three-lines-of-defense, vendor-model rigor — and tailors it to a risk-based approach calibrated to the firm's model risk profile and the size and complexity of its operations. Section / paragraph numbering may not match the prior letter; the historical §V (validation) and §VI (model risk management framework) anchors used throughout this control refer to the predecessor structure and are retained for reader continuity until the firm's MRM policy is re-mapped to the SR 26-2 published text.

Generative and agentic AI scope caveat. SR 26-2 / OCC 2026-13 expressly states that "generative AI and agentic AI models are novel and rapidly evolving. As such, they are not within the scope of this guidance." The Federal Reserve, OCC, and FDIC have not withdrawn the broader supervisory expectation that AI agents in customer-facing or decision-support roles be governed with model-equivalent rigor — that expectation continues to apply via existing safety-and-soundness, FINRA, SEC, NYDFS, and SOX regimes covered elsewhere in this control. Treat this control as the firm's model-risk-equivalent governance for AI agents until the agencies issue AI-specific guidance.

File slug. This control's file slug is 2.6-model-risk-management-sr-26-2.md. The control was renamed from its predecessor "OCC 2026-13 / Fed SR 26-2 (formerly OCC 2011-12 / SR 11-7)" slug once the supersession was confirmed; the legacy URL path no longer resolves on this site. References to "Federal Reserve SR 26-2 (formerly SR 11-7)" and "OCC Bulletin 2026-13 (formerly OCC 2011-12)" in this document and its playbooks refer to the superseded guidance unless otherwise marked. The operative citations as of the verification date are SR 26-2 and OCC Bulletin 2026-13.

Objective

Establish governance so that AI agents used in customer-facing or decision-support roles are subject to the same rigorous governance as traditional quantitative models, including model inventory, independent validation, ongoing performance monitoring, bias detection, and documented change control. This control supports compliance with OCC Bulletin 2026-13 (formerly OCC Bulletin 2011-12), Federal Reserve SR 26-2 (formerly SR 11-7), FDIC FIL-22-2017, FFIEC IT Handbook, FINRA Rule 3110, FINRA Rule 4511, SEC Rules 17a-3 / 17a-4, SOX §§ 302 / 404, GLBA 501(b), and NYDFS 23 NYCRR 500 by providing a structured framework for treating AI agents as models within the firm's existing MRM program. It does not replace, and must not be presented in the firm's MRM policy or WSPs as a substitute for, the firm's Model Risk Management Committee, independent model validation function, effective challenge process, or three-lines-of-defense governance.

Non-Substitution — Tooling Supports MRM, It Does Not Replace It

The Microsoft Purview DSPM for AI inventory, Microsoft Foundry (formerly Azure AI Foundry) evaluation harness, Microsoft Copilot Studio analytics, Agent 365 governance console, and Microsoft Entra Agent ID identity surfaces referenced in this control are inventory, evaluation, and evidence-collection surfaces. They do not replace, and must not be presented in the firm's MRM policy, WSPs, or examiner submissions as a substitute for:

  • The firm's Model Risk Management Committee and the formal model-tiering and approval decisions reserved to it under OCC Bulletin 2026-13 / SR 26-2 (formerly OCC 2011-12 / SR 11-7).
  • Independent model validation by personnel organizationally and functionally separate from the model owner / developer (SR 26-2 §V (formerly SR 11-7 §V)). "Independent" is the regulatory test — third-party engagement is one way to achieve it but is not required and is not equivalent.
  • Effective challenge — the critical, objective review by qualified personnel not involved in model development, which is the cornerstone of SR 26-2 (formerly SR 11-7) and cannot be performed by any platform telemetry on its own.
  • Three-lines-of-defense governance — first line (model owner / developer), second line (independent MRM / validation / compliance), third line (Internal Audit). The Microsoft surfaces produce evidence; lines-of-defense judgments are made by people.
  • Registered-principal supervisory review under FINRA Rule 3110 of any AI-agent business activity (see Control 2.12).
  • Books-and-records retention of model artifacts under SEC 17a-4 / FINRA 4511 — Copilot Studio analytics and Foundry evaluation runs are not WORM-compliant for 17a-4(f) purposes; long-term model documentation and validation evidence must land in Purview retention or an approved 17a-4(f) vendor (see Controls 1.7 and 1.9).

Why This Matters for FSI

  • OCC Bulletin 2026-13 (formerly OCC 2011-12): Establishes model risk management framework requirements for banks
  • Fed SR 26-2 (formerly Fed SR 11-7): Requires model development, validation, and ongoing monitoring (identical to OCC Bulletin 2026-13 (formerly OCC 2011-12); jointly issued)
  • FINRA Rule 3110: AI supervision and oversight requirements for broker-dealers
  • SOX Sections 302/404: Internal controls must include documented model controls (see SOX AI Governance below)
  • Interagency RFI on AI (2021): Confirmed OCC Bulletin 2026-13 (formerly OCC 2011-12) applies to AI/ML systems

SOX AI Governance and PCAOB Standards

SOX applies to AI systems implicitly through Internal Control over Financial Reporting (ICFR). AI agents that affect financial data, reporting, or controls must be documented and tested as IT general controls.

PCAOB AI Audit Standards Status (verified May 2026):

  • PCAOB AS 1105 (Audit Evidence) and AS 2301 (The Auditor's Responses to the Risks of Material Misstatement) remain in force without AI-specific amendments as of May 2026.
  • On March 31, 2026 the PCAOB issued Release No. 2026-001 — Request for Public Comment on PCAOB Strategic Priorities (comment period through May 15, 2026); the prior standard-setting and research agenda is paused while comments are reviewed and a new agenda is developed.
  • The PCAOB's Data and Technology research project (Office of the Chief Auditor) continues to assess whether amendments to PCAOB standards or interpretive guidance are needed in light of technology-based audit tools, including generative AI; this remains a research project (no Board action anticipated within the next 12 months) rather than a standard-setting project. See the PCAOB Standard-Setting and Research Projects page for current status.
  • Organizations should document AI system controls with sufficient detail to support external audit under existing AS 1105 / AS 2301 requirements; monitor the PCAOB's revised agenda once it is published following the Strategic Priorities RFC.

AI System Documentation for SOX Compliance:

Documentation Element Purpose Retention
Agent Card (capabilities, limitations) Control documentation Life of system + 7 years
Validation test results Control testing evidence 7 years (SOX 802)
Change log with approvals Change management evidence 7 years (SOX 802)
Performance monitoring reports Ongoing control monitoring 7 years (SOX 802)

No companion solution by design

Not all controls have a companion solution in FSI-AgentGov-Solutions; solution mapping is selective by design. This control is operated via native Microsoft admin surfaces and verified by the framework's assessment-engine collectors. See the Solutions Index for the catalog and coverage scope.

Control Description

While Copilot Studio agents may not be "models" in the traditional sense, their use in customer-facing or decision-support roles requires similar governance.

Underlying Model Availability in Copilot Studio (verify in your tenant)

Copilot Studio's underlying foundation-model lineup changes frequently and varies by tenant region, license, and Microsoft release wave. As of the verification date in this document, Copilot Studio supports multiple OpenAI GPT-family models and has announced support for additional model providers (including Anthropic Claude) in commercial cloud; availability, GA status, and default-model assignment must be verified in your tenant via Copilot Studio: Choose a generative AI model before publication.

For MRM purposes the firm must:

  • Record the specific underlying model and version in use for each agent in the model inventory and Agent Card (do not record only "Copilot Studio default").
  • Treat any change in underlying model — including a Microsoft-driven default-model migration — as a model change under SR 26-2 §VI (formerly SR 11-7 §VI), requiring documented impact assessment and re-validation per the agent's risk tier.
  • Subscribe to the Microsoft 365 Message Center and Power Platform release plans so that vendor-driven model changes are detected before they take effect (cross-reference Control 2.3 — Change Management).
  • Treat third-party model providers (e.g., Anthropic Claude when available) as vendor models under SR 26-2 §V (formerly SR 11-7 §V) — see the Vendor Model Governance section below.

Infrastructure vs MRM Framework

Microsoft provides infrastructure platforms (Dataverse, SharePoint, Power Platform, Application Insights) that can support MRM processes, but organizations must design and implement their own MRM frameworks. There is no built-in "MRM solution" that automatically classifies agents, schedules validations, or generates compliance reports. The capabilities below describe governance processes that leverage Microsoft infrastructure.

Capability Description Implementation FSI Application
Model Classification Determine if agent qualifies as "model" Organization-defined process using Dataverse/SharePoint Tier-based governance
Model Inventory Catalog agents that function as models Custom SharePoint list or Dataverse table Regulatory examination readiness
Independent Validation Third-party review of agent behavior Organization-managed process Compliance with SR 26-2 (formerly SR 11-7)
Performance Monitoring Track output quality over time Copilot Studio Analytics (built-in) + custom RAI metrics Early issue detection
Agent Cards Standardized documentation of capabilities/limitations Custom template in SharePoint/Dataverse Model transparency

Agent-as-Model Classification

Criteria Model Treatment Example
Makes decisions affecting customers Tier 1 Credit recommendation agent
Provides financial calculations Tier 1/2 Investment calculator agent
Customer-facing recommendations Tier 2 Product recommendation agent
Information retrieval only Non-model FAQ/knowledge base agent

Key Configuration Points

Organization-Designed MRM Framework

  • Classify all agents using OCC Bulletin 2026-13 (formerly OCC 2011-12) model definition criteria (organization-defined process)
  • Maintain model inventory with tier assignments, owners, and validation status (custom Dataverse table or SharePoint list)
  • Create Agent Cards documenting capabilities, limitations, and performance benchmarks (custom template)
  • Establish an independent validation program. SR 26-2 §V (formerly SR 11-7 §V) defines independence functionally — validation must be performed by personnel organizationally and functionally separate from the model owner / developer, with the authority and competence to challenge the model. Internal second-line MRM staff can satisfy this; third-party engagement is one way to demonstrate independence (often used for Tier 1 / customer-facing / decision-support agents) but is not required by SR 26-2 (formerly SR 11-7) and is not a substitute for the firm's own validation judgment.
  • Define validation schedule and tracking mechanism (custom workflow or calendar integration)

Platform-Enabled Monitoring (mapped to SR 26-2 (formerly SR 11-7) pillars)

SR 26-2 (formerly SR 11-7) sets three validation pillars: conceptual soundness, ongoing monitoring, and outcomes analysis. Each maps to a specific Microsoft surface that produces evidence the firm's validators consume — the surface does not perform the validation.

SR 26-2 (formerly SR 11-7) Pillar Primary Microsoft Surface What It Produces Where Validators Use It
Conceptual soundness Microsoft Purview DSPM for AI (inventory of agents, models, knowledge sources, prompts, and interactions) + Agent 365 Admin Center (publication approvals, governance template applied) + Agent Card Documented model purpose, design, data, intended use, limitations Pre-deployment validation memo and Model Risk Committee review
Ongoing monitoring Copilot Studio Analytics (conversational and autonomous-agent metrics) + Microsoft Foundry monitoring (when underlying model is on Foundry) + Application Insights / Azure Monitor + DSPM for AI interaction reports KPI drift, exception rate, sensitive-prompt rate, sentiment, customer-comment summaries Quarterly monitoring report to MRM Committee; threshold breaches feed Control 3.4 incident workflow
Outcomes analysis Microsoft Foundry built-in evaluators (groundedness, relevance, coherence, fluency; safety: hate/unfairness, violence, protected materials; agent-specific: tool-call accuracy, task completion) + Copilot Studio test panel + custom evaluators Quantitative quality / safety / agent-behavior scores against an evaluation dataset Periodic re-validation evidence; effective-challenge inputs

Copilot Studio Analytics Retention Windows (May 2026)

Analytics data is available for up to 180 days; session details and transcript information is available for the last 28 days (per Microsoft Learn). Ongoing-monitoring evidence — session-level data, conversation transcripts — required beyond 28 days must be exported to Log Analytics or a WORM-capable store before expiry. Validation memos and MRM Committee minutes do not live in Copilot Studio Analytics; route those to the 17a-4(f) retention path described in the Control 2.6 portal walkthrough §5.

In addition:

  • Manifest / solution version control — use Power Platform solution export/import and Application Lifecycle Management pipelines for point-in-time reconstruction of agent configuration. Pair with Control 2.3 (Change Management).
  • Prompt and knowledge-source change capture — document every change to system prompt, instructions, or knowledge source (RAG corpus) with impact assessment, approver, and effective date. Cross-reference Control 2.16 (RAG Source Integrity).
  • Identity attribution — every agent in the model inventory must be tied to a Microsoft Entra Agent ID for attribution of actions to a governed identity. See Control 2.26.
  • Long-term retention of validation evidence — pre-deployment validation memos, ongoing monitoring reports, outcomes-analysis runs, and Model Risk Committee minutes are records of the business; route to Purview retention or an approved 17a-4(f) vendor for 6-year WORM retention. See Controls 1.7 and 1.9.

Implementation Reference

See Portal Walkthrough for example inventory schemas and Agent Card templates that organizations can adapt.

Zone-Specific Requirements

Zone Requirement Rationale
Zone 1 (Personal) Non-model classification typical; minimal MRM governance Personal productivity, no customer impact
Zone 2 (Team) May be model; internal validation; standard documentation Shared agents may influence decisions
Zone 3 (Enterprise) Likely model; independent third-party validation; comprehensive documentation Customer-facing, regulatory examination focus

Roles & Responsibilities

Role Line of Defense Responsibility
Agent Owner / Copilot Studio Agent Author 1st line Model classification submission, Agent Card authorship, day-to-day monitoring of agent performance, response to MRM findings
AI Governance Lead 1st / 2nd line bridge Model-tiering recommendation to the MRM Committee, governance-template application at publish/activate time, coordination with Compliance
Model Risk Manager (independent validation function) 2nd line Independent validation per SR 26-2 (formerly SR 11-7) (conceptual soundness, ongoing monitoring, outcomes analysis); effective challenge; validation report to MRM Committee
Compliance Officer 2nd line Regulatory mapping, FINRA / SEC / OCC / NYDFS examination readiness, WSP integration
AI Administrator Operational Agent 365 Admin Center publication and activation approvals, governance template enforcement, Researcher / Computer Use configuration
Power Platform Admin Operational Environment governance, solution / manifest version control, Application Insights and Copilot Studio analytics configuration
Internal Audit 3rd line Periodic independent audit of the MRM program for AI agents; assurance to the audit committee on operating effectiveness
Model Risk Committee (governance body) Governance Final tiering decisions for Tier 1 / customer-facing agents; acceptance of validation reports; approval of model retirement

Read-only Analytics Access for Independent Validation (SR 26-2 (formerly SR 11-7))

SR 26-2 (formerly SR 11-7)'s "ongoing monitoring" pillar requires the Model Risk Manager and Internal Audit to inspect production performance signals without owning the model under review. The Copilot Studio Analytics Viewer sharing role helps meet this independence expectation by granting read-only access to an agent's Analytics page (success rate, sessions, escalations, CSAT) without conferring edit rights on agent topics, knowledge, or actions. Pair with the Bot Transcript Viewer role to expose conversation transcripts used as outcomes-analysis evidence. The role is shared by the agent owner via the agent's three-dots menu → Share → Analytics viewer and must be assigned to individual users — Microsoft Entra security groups are not supported, so maintain a named-individual attestation log linked to the validation work-paper to support OCC Bulletin 2026-13 / SR 26-2 (formerly OCC 2011-12 / SR 11-7) audit traceability. See Share an agent.

Control Relationship
1.6 - Microsoft Purview DSPM for AI Authoritative AI inventory and prompt/response capture feeding the model inventory and ongoing-monitoring pillar
1.7 - Comprehensive Audit Logging 17a-4(f) WORM retention path for model artifacts, validation evidence, and MRM Committee minutes
1.9 - Data Retention and Deletion Retention schedule for validation evidence (6 years)
1.10 - Communication Compliance Supervisory review of customer-facing agent communications feeding outcomes analysis
2.1 - Managed Environments Platform substrate that hosts governed agents in scope for MRM
2.3 - Change Management Captures vendor-driven model changes (e.g., Microsoft default-model migration) and prompt / knowledge-source changes as MRM-relevant model changes
2.5 - Testing and Validation Pre-deployment validation evidence
2.7 - Vendor and Third-Party Risk Management Vendor-model governance under SR 26-2 §V (formerly SR 11-7 §V) (Azure OpenAI, Anthropic Claude, partner models)
2.8 - Access Control and Segregation of Duties Independence of validation function from model owner / developer
2.11 - Bias Testing Fairness component of outcomes analysis
2.12 - Supervision (FINRA Rule 3110) Registered-principal supervisory layer over AI-enabled business activity
2.14 - Training and Awareness Competence requirement for validators and effective-challenge participants
2.16 - RAG Source Integrity Validation Knowledge-source integrity feeds conceptual-soundness validation
2.25 - Agent 365 Admin Center Governance Console Publication / activation approval surface; governance templates; MRM-relevant lifecycle gating
2.26 - Entra Agent ID Identity Governance Identity attribution of agent actions to a governed Entra Agent ID
3.1 - Agent Inventory and Metadata Management Authoritative agent registry feeding the model inventory
3.2 - Usage Analytics and Activity Monitoring Usage data feeding ongoing-monitoring pillar
3.3 - Compliance and Regulatory Reporting MRM reporting to regulators and the audit committee
3.4 - Incident Reporting and Root Cause Analysis Threshold breaches and outcomes-analysis failures escalate into the IR / RCA workflow; RCA feedback returns to MRM
3.6 - Orphaned Agent Detection Ownerless / orphaned agents are MRM-actionable; an unowned model has no accountable owner under SR 26-2 (formerly SR 11-7)
3.9 - Microsoft Sentinel Integration Cross-source telemetry for ongoing monitoring and incident correlation

Implementation Playbooks

Step-by-Step Implementation

This control has detailed playbooks for implementation, automation, testing, and troubleshooting:

Vendor Model Governance (SR 26-2 Section V (formerly SR 11-7 Section V))

Vendor Models Require Equal Rigor

Federal Reserve SR 26-2 Section V (formerly SR 11-7 Section V) explicitly requires that vendor-provided models be validated with the same rigor as internally-developed models. For AI agents using Microsoft Azure OpenAI, OpenAI APIs, or other third-party model providers, organizations must:

  1. Obtain sufficient documentation from the vendor to understand model behavior and limitations
  2. Conduct independent validation appropriate to the model's risk tier
  3. Monitor ongoing model performance including tracking vendor model updates
  4. Assess vendor model changes before deployment to production
Vendor Model Governance Requirement SR 26-2 (formerly SR 11-7) Reference FSI-AgentGov Implementation
Documentation from vendor Section V Request Azure OpenAI model cards, benchmark data
Validation despite vendor source Section V Independent validation per tier (see Agent-as-Model Classification)
Ongoing monitoring Section V Track model performance in Copilot Studio Analytics
Change assessment Section V Review Microsoft model update announcements before deployment

Cross-Reference: For broader third-party risk management including vendor due diligence and contractual requirements, see Control 2.7 - Vendor and Third-Party Risk Management. For third-party relationship supervision, see Federal Reserve SR 13-19 (Guidance on Managing Outsourcing Risk).

Third-Party Attestation

For Tier 1 agents in customer-facing or decision-support roles, consider engaging third-party assessors with expertise in financial services recordkeeping and AI governance (e.g., Cohasset Associates for SEC 17a-4, CFTC 1.31, FINRA recordkeeping compliance). See Troubleshooting for escalation guidance.

Verification Criteria

Confirm control effectiveness by verifying:

  1. Every agent in the firm's authoritative inventory (Control 3.1 / DSPM for AI) has a documented model-classification decision with rationale, classifier identity, and decision date.
  2. Model inventory records, for each in-scope agent: tier, owner, sponsor, underlying model and version, knowledge sources, validation status, last validation date, and next scheduled validation.
  3. Agent Cards exist for every Tier 1 and Tier 2 agent and document intended use, data, limitations, performance benchmarks, and known failure modes.
  4. Independent validation (conceptual soundness, ongoing monitoring, outcomes analysis) has been completed for each in-scope agent at a frequency commensurate with risk, model complexity, and change activity (SR 26-2 §V (formerly SR 11-7 §V)) — not on a fixed annual basis. Validation cadence is documented in the model risk policy and approved by the MRM Committee.
  5. Effective challenge of each Tier 1 validation is evidenced by MRM Committee minutes referencing the specific challenge questions raised and their disposition.
  6. Ongoing-monitoring thresholds are defined per agent, alerts route to a named owner, and threshold breaches are escalated to the IR workflow per Control 3.4.
  7. Vendor-model change notifications (Microsoft Message Center, Power Platform release plan, Foundry model deprecations) are reviewed and dispositioned as model changes per SR 26-2 §V (formerly SR 11-7 §V) before they take effect in production.
  8. Solution / manifest version control enables point-in-time reconstruction of agent configuration for any date in the retention window.
  9. Validation evidence, MRM Committee minutes, model retirement decisions, and vendor-model assessments are retained on 17a-4(f)-compliant media for six years (with the first two easily accessible).
  10. A documented model-retirement / sunset workflow exists and has been exercised at least once, with retirement evidence retained alongside development and validation evidence.

Additional Resources

Regulatory sources — current (April 2026)

Regulatory sources — historical (rescinded April 2026, retained for audit-trail context)

Microsoft Learn — surfaces this control depends on (verified May 2026)

Standards crosswalk

  • NIST AI RMF Crosswalk (FSI-AgentGov) — Control 2.6 maps to GOVERN 1.2 (compliance assessment), GOVERN 1.4 (enterprise risk integration), MAP 2.2 (risk tolerance), MAP 3.3 (trustworthiness requirements), and MEASURE 1.1 / 2.1 / 2.10 (measurement approaches, trustworthiness testing, validity and reliability)

Updated: June 2026 | Version: v1.6.2 | UI Verification Status: Current