---
title: "SR 11-7 for AI agents · KYE™ Learn™"
description: "The 2011 Fed model risk guidance is back because agents take actions banks can't unwind. How the three-line model maps, what 'effective challenge' means, where Replay-Proof™ slots in."
url: https://kyeprotocol.com/learn/articles/sr-11-7-explained/
lang: en
source: "KYE Protocol"
---

> The 2011 Fed model risk guidance is back because agents take actions banks can't unwind. How the three-line model maps, what 'effective challenge' means, where Replay-Proof™ slots in.

KYE™ Learn™ · Frameworks

# SR 11-7 for AI agents.

The Fed's 2011 model risk guidance is the most useful AI-agent governance framework that already exists in US banking — because it was already about decisions, not just predictions. Here's how it maps when the model can act.

Published 2026-05-19 · reviewed 2026-05-19 · ~6-min read

## The four classic model risk categories — extended

| SR 11-7 category | What it meant (2011) | What it means for agents (2026) |
| --- | --- | --- |
| **Methodology error** | Wrong math, wrong assumption set | Wrong tool selection, wrong prompt strategy, wrong RAG corpus |
| **Implementation error** | Code bug, data pipeline bug | Adapter bug, system-prompt drift, schema mismatch |
| **Use error** | Model used outside its scope | Agent used beyond delegated authority — the canonical authority gap |
| **Output error** | Bad answer accepted into a decision | Bad answer + bad action — and the action has happened |
| **Action error (new)** | n/a | The agent did the right thing for the wrong reason / wrong principal / wrong scope. Replay-Proof™ exists because of this category. |

## The three-line model

SR 11-7 §VI organises model risk governance into three lines of defence. For AI agents:

- **First line** — the business unit owning the agent. Designs the workflow, runs it day-to-day, owns the authority bindings.
- **Second line** — independent model risk management. Reviews methodology, validates outputs, monitors drift, owns the Assurance Card.
- **Third line** — internal audit. Re-derives decisions from Replay-Proof™ evidence packs. Tests effective challenge.

Effective challenge — the §IV cornerstone — is impossible without reproducible decisions. For non-AI models you could re-run the regression. For agents you need the evidence pack + the spec + the signatures. That's what Replay-Proof™ is.

## Documentation expectations

SR 11-7 §V demands documented inventory, ongoing monitoring, change management. For agents the document set extends to:

- **Authority lattice** — what each agent may do, granted by whom, with what purpose, until when.
- **Guard set** — the runtime constraints that the agent runs under.
- **Shadow-mode baseline** — the known-good comparison metric before enforcement.
- **Action log** — every action taken by the agent, signed, hash-linked.
- **Authority-gap report** — periodic review of where the agent acted outside its authority and why.

## How KYE Protocol™ maps

See the [SR 11-7 clause-by-clause control mapping](https://kyeprotocol.com/frameworks/sr-11-7/). Highlights:

- §III — Model inventory → Entity Engine (every model is a KYEID).
- §IV — Effective challenge → Decision Engine + Replay-Proof™.
- §V — Documentation + change → Operating Model + signed state-transition events.
- §V — Outcomes + monitoring → Drift cascade + Reconciliation Engine.
- §VI — Governance + roles → GovernedUI™ Action Approval (two-person + two-person-with-legal).

**Next:** [ISO/IEC 42001 — AI management system, in 8 minutes](https://kyeprotocol.com/learn/articles/iso-42001-explained/)

Canonical KYE™ surfaces referenced on this page: [Evidence Pack™](https://kyeprotocol.com/evidence-pack/) · [KYE Protocol™](https://kyeprotocol.com/) · [KYE™ Reconciliation Engine](https://kyeprotocol.com/glossary/).