A Regulatory Governance Framework for AI-Driven Financial Fraud Detection in U.S. Banking: Integrating OCC, SR 11-7, CFPB, and FinCEN Compliance Requirements for Model Development, Validation, and Monitoring Lifecycles

• URL: http://arxiv.org/abs/2605.04076v1
• Date: Tue, 14 Apr 2026 08:30:04 GMT
• Title: A Regulatory Governance Framework for AI-Driven Financial Fraud Detection in U.S. Banking: Integrating OCC, SR 11-7, CFPB, and FinCEN Compliance Requirements for Model Development, Validation, and Monitoring Lifecycles
• Abstract summary: This paper presents the Regulatory Governance Framework for AI-Driven Financial Fraud Detection (RGF-AFFD)<n>It is a three-tier governance architecture empirically anchored in a multi-study empirical program.<n>The RGF-AFFD is the first integrated deployment blueprint to simultaneously satisfy OCC, SR 11-7, CFPB, and FinCEN requirements.
• Score: 0.40611352512781873
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• Abstract: U.S. financial institutions deploying AI-based fraud detection face a fragmented compliance landscape spanning four regulatory frameworks -- OCC Bulletin 2011-12, SR 11-7, the CFPB AI circular, and FinCEN BSA/SAR requirements -- with no integrated governance life cycle connecting these requirements to model development, validation, and monitoring practice. This paper presents the Regulatory Governance Framework for AI-Driven Financial Fraud Detection (RGF-AFFD), a three-tier governance architecture empirically anchored in a multi-study empirical program. Using the IEEE-CIS dataset (590,540 transactions) and ULB benchmark (284,807 transactions), we benchmark six architectures including an LSTM+XGBoost ensemble, and conduct ablation, temporal drift, SHAP interpretability, and BISG fairness analyses. The LSTM+XGBoost ensemble achieves ROC-AUC of 0.9289 (F1: 0.6360) with a benefit-cost ratio of 6:1. XGBoost demonstrates the strongest temporal stability (delta-AUC = -0.0017 versus -0.0626 for LSTM). The RDT-FG Regulatory Digital Twin meta-model translates metrics into four regulator-specific health scores and a composite Regulatory Fitness Index for continuous compliance monitoring. The RGF-AFFD is the first integrated deployment blueprint to simultaneously satisfy OCC, SR 11-7, CFPB, and FinCEN requirements, supported by a community bank implementation vignette and four evidence-based policy recommendations.

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