Federal Reserve Vice Chair for Supervision Michelle Bowman has called for financial regulators to scale back oversight requirements for smaller institutions using artificial intelligence, arguing that rules built for large, complex AI deployments should not be applied uniformly across the industry.
Bowman made the remarks Tuesday at a virtual outreach event hosted by the Financial Stability Board, where she discussed a newly released consultation report titled Sound Practices for Responsible Adoption of Artificial Intelligence.
The document is being developed jointly by the FSB, the Federal Reserve, the Treasury, and the SEC, and is expected to be finalized later this year as part of the US presidency's G-20 agenda.
Bowman was explicit that the opinions she shared were hers alone and did not necessarily reflect those of her colleagues on the Federal Reserve Board or the Federal Open Market Committee.
"What works or is a consideration for larger institutions using AI in complex applications is not appropriate for smaller institutions with less complex AI uses," Bowman said.
The FSB consultation document itself backs up that framing, stating that more robust practices may suit institutions that are large, complex and highly interconnected, while smaller or less complex firms may only need a modified subset of the sound practices.
Bowman added that regulatory attention should track actual risk rather than simply the presence of AI itself. In her view, institutions ought to be clear about how they are using AI tools and whether that use is material to their operations or regulatory obligations, since materiality should shape how much governance and control is expected. Lower-risk applications, she said, warrant a lighter supervisory touch.
Notably, the FSB document is not limited to banks. It states that its sound practices apply across all types of financial institutions, and one of its consultation questions specifically seeks additional case studies from nonbanks.
That scope brings asset managers, broker-dealers and wealth platforms directly into the discussion.
The document also points to AI use in customer profiling, investment planning, portfolio management and rebalancing as areas of particular relevance, and names mis-selling and unsuitable recommendations among the consumer-protection risks regulators are watching.
Bowman noted that the Fed has tracked bank use of AI for close to a decade and has observed steady growth in adoption across institutions of every size, spanning a wide range of use cases. She said the central bank's supervisory approach has aimed to support firms that want to adopt the technology responsibly, and that this experience has fed directly into the FSB's global report.
The consultation report includes case studies meant to illustrate governance and control practices that could apply in comparable situations, though Bowman stressed these examples are not the only acceptable route to responsible AI adoption. The FSB document itself is organized around 12 sound practices covering governance and the full AI lifecycle, with the practice on materiality and risk assessment most directly aligned with Bowman's proportionality argument.
Bowman used her remarks to invite feedback on where the draft practices might be too rigid, or where they fail to properly account for differences in size, complexity, and risk across institutions. She also asked stakeholders to flag any material risks the report may have overlooked, or areas where firms would benefit from additional clarity.
The FSB is accepting responses to the consultation until July 22, 2026, via an online submission form, and has said it intends to publish responses on its website unless respondents request otherwise.
Bowman said comments gathered during the consultation window, including from the outreach event itself, will shape the final version of the report due to be delivered to the US G-20 presidency later this year.
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