Governance Zones: Complete Overview

Three-Zone Governance Model

The framework uses three governance zones to balance innovation with compliance. Agents progress from development (Zone 1) through team collaboration (Zone 2) to enterprise production (Zone 3).

Quick Comparison

Attribute	Zone 1: Personal	Zone 2: Team	Zone 3: Enterprise
Risk Level	Low	Medium	High
Scope	Individual	Department	Organization-wide
Data Access	M365 Graph only	Internal data	Regulated/sensitive
Approval	Self-service	Manager	Governance Committee
Audit Retention	30 days	1 year	10 years
Managed Environment	Not required	Recommended	Mandatory
MFA	Standard	Enforced	Phishing-resistant
Regulatory Scrutiny	None	Moderate	Full compliance
Setup Time	1-2 days	1-2 weeks	3-6 weeks

---

Zone 1: Personal Productivity

Profile

• Risk Level: Low
• Scope: Individual developers
• Typical Users: Single user or small team
• Data Access: Microsoft Graph only
• Regulatory Scrutiny: Minimal

Characteristics

• Development and learning environment
• Isolated from organizational controls
• Quick prototyping and experimentation
• No production customer data
• Self-service deployment

Governance Model

• Approval: Self-service (no approval needed)
• Publishing: Self-published by creator
• Data: Personal data only
• Retention: 30 days (default)
• Audit: Basic logging only
• Access Reviews: Annual (if any)

Typical Agents

• Personal productivity bot
• Learning/development agent
• Proof-of-concept demonstration
• Personal research assistant

Technology Stack

• Managed Environments: Not required
• DLP: Baseline only
• Audit: 30-day retention acceptable
• Connectors: Restricted connectors allowed
• MFA: Basic (standard M365 login)

Regulatory Status

Zone 1 is NOT subject to FINRA, SEC, or GLBA examination.

• No books and records requirements
• No formal supervision required
• No model risk management needed
• Sandbox environment for innovation

Compliance Requirements

• Document agent purpose
• Maintain creator documentation
• Basic audit logging
• No external data sharing

---

Zone 2: Team Collaboration

Profile

• Risk Level: Medium
• Scope: Teams or departments
• Typical Users: Team members within department
• Data Access: Internal departmental data
• Regulatory Scrutiny: Moderate

Characteristics

• Shared across team/department
• Internal data access
• Collaboration and workflow support
• Medium business impact if fails
• Cross-team dependencies possible

Governance Model

• Approval: Manager/Department Head approval required
• Publishing: Central publishing workflow
• Data: Departmental data only
• Retention: 1 year minimum
• Audit: Weekly exports recommended
• Access Reviews: Quarterly

Typical Agents

• HR benefits assistant
• IT help desk support
• Document processing for team
• Compliance training delivery
• Internal knowledge bot

Technology Stack

• Managed Environments: Recommended
• DLP: Strict policies
• Audit: 1-year retention
• Connectors: Approved connectors only
• MFA: Enforced
• Environment Groups: Recommended

Regulatory Status

Zone 2 is subject to MODERATE regulatory oversight:

• FINRA examiners may request agent list and approval documentation
• SEC reviewers may inquire about data handling
• Supervisory controls per FINRA Rule 3110 required
• Annual testing recommended

Compliance Requirements

• Formal approval workflow
• Documented business justification
• Data source documentation
• Access controls and permissions
• Monthly compliance reviews
• Training for users

Implementation Considerations

• Department head signs off on deployment
• Compliance reviews recorded
• Access permissions documented
• Data sources approved
• Incident response procedures

---

Zone 3: Enterprise Managed

Profile

• Risk Level: High
• Scope: Organization-wide or customer-facing
• Typical Users: Multiple departments, external customers
• Data Access: Sensitive, regulated data
• Regulatory Scrutiny: High / Critical

Characteristics

• Production environment
• Customer-facing or high-value business
• Sensitive or regulated data
• Critical business impact if fails
• Full compliance requirements

Governance Model

• Approval: Governance Committee + Legal review
• Publishing: Change control process
• Data: All regulated and sensitive data
• Retention: 10 years minimum (per SEC 17a-3/4)
• Audit: Real-time monitoring
• Access Reviews: Monthly with attestation

Typical Agents

• Client service chatbot
• Compliance monitoring
• Trading/transaction processing
• Document processing for regulated data
• Risk assessment/credit scoring
• Financial reporting assistant

Technology Stack

• Managed Environments: Mandatory
• DLP: Strictest policies
• Audit: 10-year retention with WORM
• Connectors: Allowlisted only
• MFA: Phishing-resistant (FIDO2/Windows Hello)
• Runtime Protection: Mandatory
• DSPM for AI: Recommended

Regulatory Considerations

Zone 3 agents handling regulated data may be subject to comprehensive oversight depending on institution type and use case:

Institution Type	Primary Regulator(s)	Key Requirements
National banks	OCC	Model risk (OCC 2011-12), third-party guidance
State member banks	Federal Reserve	SR 11-7 model risk, supervision
State non-member banks	FDIC	Interagency guidance, FFIEC IT Handbook
Credit unions	NCUA	Part 748 security program
Broker-dealers	FINRA, SEC	FINRA 3110 supervision, SEC 17a-3/4 records
Investment advisers	SEC	SEC examination, Reg BI compliance
Insurers	State regulators	NAIC model law, state-specific requirements
NY-licensed entities	NYDFS	Part 500 cybersecurity requirements

Additional oversight may include:

• CFPB examination (consumer financial services)
• SOX controls testing (public companies)
• Internal audit review (all organizations)

Compliance Requirements

MANDATORY Controls:

1. Governance Committee Approval
2. AI Governance Lead
3. Compliance Officer
4. CISO
5. Legal/General Counsel

6. Business Owner

7. Model Risk Management

8. Validation testing
9. Bias testing and fairness assessment
10. Performance monitoring vs. baseline

11. Annual third-party validation (recommended)

12. Data Security

13. DLP with strictest policies
14. Sensitivity labels mandatory
15. Encryption in transit and at rest

16. Customer-managed keys (recommended)

17. Audit and Logging

18. 10-year retention with immutable storage
19. Real-time monitoring and alerting
20. Daily compliance reviews

21. Weekly executive reporting

22. Change Management

23. 48-hour change review window
24. Formal change advisory board (CAB)
25. Automated rollback capability

26. Testing in lower tier before promotion

27. Incident Response

28. SLA for incident investigation (<4 hours)
29. Root cause analysis required
30. Executive escalation procedures
31. Board notification procedures

Implementation Considerations

• Formal governance committee established
• Comprehensive risk assessment completed
• Model validation documented
• Security testing completed
• Legal review and sign-off obtained
• Training and awareness program implemented
• Incident response playbooks documented

---

Zone Progression Model

Agents typically progress through zones as they mature:

graph TB
    Z1[Zone 1: Personal<br/>Development & Learning]
    Z2[Zone 2: Team<br/>Collaboration]
    Z3[Zone 3: Enterprise<br/>Production]

    Z1 -->|"Proven value +<br/>Manager approval"| Z2
    Z2 -->|"Full testing +<br/>Committee approval"| Z3
    Z3 -.->|"Policy violation"| Z2
    Z2 -.->|"Compliance failure"| Z1

    style Z1 fill:#66BB6A,color:#fff
    style Z2 fill:#FFA726,color:#fff
    style Z3 fill:#EF5350,color:#fff

Promotion Criteria

Zone 1 → Zone 2:

• Proof of concept validated
• Manager approval obtained
• Data source identified and approved
• User training completed
• Incident response procedures documented

Zone 2 → Zone 3:

• Production readiness testing completed
• Security assessment passed
• Model risk validation completed
• Bias testing results documented
• Governance committee approval obtained
• Legal and compliance sign-off received

Demotion/Remediation

If an agent violates governance requirements:

• Zone 3 → Zone 2: Policy violations, performance issues
• Zone 2 → Zone 1: Compliance failures, security incidents
• Suspension: Critical security issues (any zone)

Demotion typically requires:

• Root cause analysis
• Remediation plan
• Re-approval before re-promotion

---

Regulation-Zone Mapping

FINRA Examination Focus by Zone

Zone	FINRA Focus	Key Controls	Examination Depth
Zone 1	None	N/A	None
Zone 2	Supervisory controls	Rule 3110	Moderate
Zone 3	Complete oversight	Rules 3110, 4511, Notice 25-07	Comprehensive

SEC Examination Focus by Zone

Zone	SEC Focus	Key Controls	Examination Depth
Zone 1	None	N/A	None
Zone 2	Data handling	Reg S-P	Limited
Zone 3	Complete compliance	Rules 17a-3/4, AI disclosure	Comprehensive

SOX Internal Controls by Zone

Zone	SOX Scope	Documentation	Testing
Zone 1	None	N/A	None
Zone 2	Limited	Process docs	Annual
Zone 3	Full	All controls	Annual + Continuous

---

Zone Decision Matrix

Use this decision tree to determine the appropriate zone for your agent:

flowchart TD
    Start([New Agent]) --> Q1{Customer-facing<br/>or regulated data?}
    Q1 -->|Yes| Z3[Zone 3: Enterprise]
    Q1 -->|No| Q2{Shared across<br/>team/department?}
    Q2 -->|Yes| Q3{Accesses internal<br/>business data?}
    Q2 -->|No| Z1[Zone 1: Personal]
    Q3 -->|Yes| Z2[Zone 2: Team]
    Q3 -->|No| Z1

    Z1 --> A1[Self-Service<br/>30-day audit]
    Z2 --> A2[Manager Approval<br/>1-year audit]
    Z3 --> A3[Committee Approval<br/>10-year audit]

    style Z1 fill:#66BB6A,color:#fff
    style Z2 fill:#FFA726,color:#fff
    style Z3 fill:#EF5350,color:#fff

Questions to Determine Zone

Question	Zone 1	Zone 2	Zone 3
Who uses the agent?	Individual only	Team/Department	Organization-wide
What data accessed?	Microsoft Graph only	Internal data	Regulated/sensitive data
Customer-facing?	No	No (internal only)	Yes or customer data
Regulatory scrutiny?	Minimal	Moderate	High
Business impact if fails?	Low - inconvenience	Medium - workflow disruption	High - financial/reputational
Approval required?	Self-service	Manager/Dept Head	Governance Committee
Audit retention?	30 days	1 year	10 years

---

Zone Selection: Detailed Criteria

Risk-Based Classification

When determining the appropriate zone for an agent, evaluate these risk factors:

flowchart TD
    A[📋 New Agent Request] --> B{Data Classification?}

    B -->|Public/Personal Only| C{User Scope?}
    B -->|Internal Business Data| D{External Access?}
    B -->|Customer PII/Financial| E[🔴 Zone 3<br/>Enterprise Managed]

    C -->|Individual| F[🟢 Zone 1<br/>Personal Productivity]
    C -->|Team/Department| G{Regulatory Impact?}

    D -->|No| H[🟡 Zone 2<br/>Team Collaboration]
    D -->|Yes| E

    G -->|Minimal| H
    G -->|Moderate-High| E

    style F fill:#66BB6A,color:#fff
    style H fill:#FFA726,color:#fff
    style E fill:#EF5350,color:#fff

Zone Selection Scorecard

Use this scorecard to determine the appropriate zone. Score each factor and total:

Factor	Zone 1 (0 pts)	Zone 2 (1 pt)	Zone 3 (2 pts)
Data Sensitivity	Personal/public	Internal business	Customer/regulated
User Count	1 user	2-50 users	50+ users
Business Impact	Inconvenience	Workflow disruption	Financial/legal
External Access	None	Internal only	Customer-facing
Regulatory Scope	None	FINRA 3110	Full compliance
Data Sources	M365 Graph	Internal SharePoint	CRM/Financial systems

Scoring:

• 0-2 points: Zone 1 - Personal Productivity
• 3-6 points: Zone 2 - Team Collaboration
• 7+ points: Zone 3 - Enterprise Managed

Automatic Zone Triggers

Certain characteristics automatically require a specific zone:

Trigger	Required Zone	Rationale
Customer PII accessed	Zone 3	GLBA, Reg S-P compliance
Financial transaction data	Zone 3	SOX, SEC requirements
Credit/lending decisions	Zone 3	ECOA, fair lending
External customer access	Zone 3	Full supervision required
Cross-department sharing	Zone 2+	Governance oversight
Production deployment	Zone 2+	Change control required

---

Zone-Specific Sharing Controls

Agent sharing and publishing are enforced through individual rules in Environment groups. Configure these rules in PPAC under Manage → Environment groups → [Group] → Rules.

Available Sharing & Channel Rules

Based on current PPAC capabilities (29 rules available):

Rule Name	Description	Zone Relevance
Sharing agents with Editor permissions	Controls who can co-author agents	All zones
Sharing agents with Viewer permissions	Controls who can view/run agents	All zones
Channel access for published agents (preview)	Controls which channels agents can publish to	Zones 2-3
Authentication for agents (preview)	Controls agent authentication requirements	Zones 2-3
Maker welcome content	Onboarding guidance for new makers	All zones

AI Model Governance Rules

Rule Name	Description	Zone Relevance
Enable External Models (preview)	Allow AI models hosted outside Microsoft	Zone 3 only
Preview and experimental AI models	Allow pre-release AI capabilities	Zones 1-2
Generative AI setting	Enable/disable generative AI features	All zones
AI prompts	Enable AI prompts feature	All zones

Sharing Rule Configuration

The sharing rules in PPAC are simple enable/disable toggles:

Sharing agents with Editor permissions

Setting: Checkbox - "Let people grant Editor permissions when agents are shared"

Option	Effect
☑️ Enabled	Owners/editors can grant edit access to individuals
☐ Disabled	No one can share edit permissions

Constraints:

• Editor permissions can only be shared with individuals (not security groups)
• Only people with Editor or Owner permissions can share
• Sharing limits do not apply when agent authentication is set to "No authentication"

See Share and manage agents for detailed sharing guidance.

Zone Sharing Recommendations

Zone	Editor Sharing	Viewer Sharing	Authentication
Zone 1	☐ Disabled	☐ Disabled	Required (prevents bypass)
Zone 2	☑️ Enabled	☑️ Enabled	Required (Entra ID)
Zone 3	☐ Disabled*	☑️ Enabled	Required (Entra ID)

*Zone 3 editor sharing disabled to enforce change control - edits go through ALM pipeline.

⚠️ FSI Note: Always enable authentication for agents in Zones 2-3. Sharing limits are bypassed when authentication is disabled, creating a governance gap.

---

Channel Access for Published Agents

Control which channels agents can publish to. Configure in PPAC under Manage → Environment groups → [Group] → Rules → Channel access for published agents.

⚠️ Note: If more restrictive data policies exist, those will override these channel settings.

Available Channels

Channel	Description	Risk Level
Teams + Microsoft 365 Copilot	Internal Microsoft channels	Low
SharePoint	SharePoint site integration	Low
Dynamics 365 for Customer Service	CRM integration	Medium
Direct Line channels	Secure connections to websites and apps	Medium-High
Facebook	Social media channel	High
WhatsApp	External messaging	High

Zone-Based Channel Recommendations

Channel	Zone 1	Zone 2	Zone 3
Teams + Microsoft 365 Copilot	☑️	☑️	☑️
SharePoint	☐	☑️	☑️
Dynamics 365 for Customer Service	☐	☐	☑️
Direct Line channels	☐	☐	☑️*
Facebook	☐	☐	☐**
WhatsApp	☐	☐	☐**

Zone 3 only with security review and approval *External social/messaging channels typically blocked in FSI for compliance

🏦 FSI Compliance Note: External channels (Facebook, WhatsApp) require FINRA-compliant archiving and supervision. Most FSI organizations disable these channels unless specific compliance controls are in place per FINRA Rule 3110 and FINRA Regulatory Notice 17-18.

---

Implementation Guidance by Zone

Zone 1 Setup (1-2 days)

1. Enable personal environments
2. Configure basic DLP
3. Document agent purpose
4. Train user on best practices

Zone 2 Setup (1-2 weeks)

1. Establish approval workflow
2. Configure Managed Environments
3. Implement DLP policies
4. Set up audit logging (1-year)
5. Document compliance procedures
6. Train team members

Zone 3 Setup (3-6 weeks)

1. Establish governance committee
2. Perform model risk assessment
3. Conduct bias and fairness testing
4. Implement comprehensive DLP
5. Configure 10-year audit retention
6. Deploy runtime protection
7. Establish incident response
8. Obtain legal and compliance sign-off
9. Train governance team and operators

---

Common Zone Questions

Q: Can an agent be in multiple zones? A: No. Each agent exists in one zone. It may progress to a higher zone as it matures.

Q: What if an agent crosses zone boundaries? A: If a Zone 1 agent needs to access team data, it should be promoted to Zone 2 with appropriate approvals.

Q: How do we prevent zone bypassing? A: Use environment groups, Managed Environments, and DLP policies to enforce zone boundaries technically.

Q: Can we have Zone 1 agents access Zone 3 data? A: No. Zone 1 is restricted to Microsoft Graph. Access to regulated data requires Zone 3.

---

Quarterly Zone Reviews

Each zone should have recurring compliance reviews:

• Zone 1: Annual review (if tracked)
• Zone 2: Quarterly compliance review
• Zone 3: Monthly review with attestation

---

FSI Agent Governance Framework Beta - December 2025