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Practitioners — Public Auditors · updated 2026-06-03
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Finding#2 — Six-month LNAFE floor inflated into invented dual-track minimum

RLB Citation ID: RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003
AI's failure:Exposed Fabrication Risk for Public Auditors:Wrong deliverable
What the RLB Specialist Panel found
For Claude Opus 4.7 (web search on)
Question (paraphrased to protect IP)

What is the minimum liquid net assets funded by equity (LNAFE) that PFMI Principle 15 Key Consideration 3 requires an FMI to hold, and how exactly is that minimum structured and calculated under the rule text?

RLB's analysis

The model constructed a "greater of" compound minimum that does not exist in the published standard. The regulator's text for Key Consideration 3 states a single flat floor — six months of current operating expenses — without any scenario-analysis-derived comparator. The scenario-analysis component the model introduced may reflect concepts from adjacent Key Considerations within the same Principle, but the model merged them into a single formulation and attributed the compound structure specifically to Key Consideration 3. An FMI compliance team relying on this response would overstate the regulatory minimum in a way that mischaracterises the rule's actual structure.

AI Head's analysis — what weakness in the AI model caused this

This failure implicates training-data anchoring on PFMI Principle 15 KC3's quantitative minimum: the model generated a 'greater of' compound floor where the regulator's published text states a single flat floor. The compound structure may have been synthesised from scenario-analysis language in adjacent Key Considerations. The subsystem gap is single-floor vs. compound-floor discrimination — the model's generalised schema for regulatory capital minimums produced a more complex formulation than the rule requires, expressed with high apparent confidence.

For Claude Sonnet 4.6 (web search on)
Question (paraphrased to protect IP)

A head of liquidity risk at a major derivatives CCP wants a briefing covering the PFMI Principle 15 requirements for liquid net assets funded by equity — the minimum level, how it is calculated, and what qualifies — together with what the November 2025 CPMI-IOSCO assessment found about FMI compliance with this standard, and what changes the FIA and ISDA proposed in their response to the associated CPMI-IOSCO consultation.

RLB's analysis

The model located the correct quantitative threshold but attributed it to Key Consideration 2 instead of Key Consideration 3. The error is a cross-reference mis-assignment — the model's description of KC2's function ("potential general business losses") is drawn from the correct Key Consideration, but when it located the six-month floor it attached it to the wrong KC number. For a compliance team using this response to draft internal policy, the mis-assignment directs them to review and cite the wrong provision of the PFMI framework, with material consequences for regulatory engagement accuracy.

The model also cited a third-party regulatory commentary source as a basis for this section of its response.

AI Head's analysis — what weakness in the AI model caused this

This failure implicates the model's cross-reference resolution within the PFMI Principle 15 Key Consideration list: the correct threshold was located but attributed to KC2 instead of KC3. The subsystem gap is structured-document KC-number-to-provision linkage in training data — the model's Annex A representation does not reliably bind specific quantitative requirements to their correct KC identifier. The Pretextual citation (third-party commentary) used as a sourcing basis for this section of the response compounds the error.

Cited source(s)
  • https://www.regulationtomorrow.com/2025/11/cpmi-iosco-papers-on-management-of... — Pretextual
Impact for Public Auditors in international jurisdictions advising on the Implementation Monitoring of the PFMI: Level 3 Assessment on General Business Risks

An auditor accepting the 'greater of' framing would assess a CCP's LNAFE buffer against a dual-track minimum — the six-month floor and a scenario-analysis sizing leg — when KC3 contains only the six-month floor. The scenario-analysis obligation sits in KC2 and is a separate, prior step in the compliance analysis. The practical effect is that an auditor applying the fabricated composite standard could reach a different compliance conclusion than one reading KC3 directly, and would produce a gap analysis built on a structural misreading of the KC architecture.

References — raw findings (per AI model)
This finding also affects
← Previous finding Finding#1 — KC3 Basel carve-out condition fabricated with KC4 liquidity test
Cite this finding

Each finding has a stable Citation ID (RLB-F-… for aggregated case-study findings, RLB-H-… for raw per-model hallucinations) — like a DOI, the ID always resolves to the canonical finding even if URLs change.

RLB Citation ID: RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003
Plain text Download
RegLeg Specialist Panel (2026). "Finding#2 — Six-month LNAFE floor inflated into invented dual-track minimum — Practitioners — Public Auditors." Citation ID: RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003. RegLegBrief AI Hallucination Research, published 2026-06-03. https://reglegbrief.com/regulators/j1/int/bis-cpmi/cpmi-iosco-pfmi-l3-general-business-risk-2025/practitioners/public-auditors/finding/INT-BIS-CPMI-INT-001-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-v1-003/
APA 7th edition Download
RegLeg Specialist Panel. (2026). Finding#2 — Six-month LNAFE floor inflated into invented dual-track minimum [Hallucination finding RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003]. RegLegBrief AI Hallucination Research. https://reglegbrief.com/regulators/j1/int/bis-cpmi/cpmi-iosco-pfmi-l3-general-business-risk-2025/practitioners/public-auditors/finding/INT-BIS-CPMI-INT-001-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-v1-003/
Bluebook / OSCOLA (US + UK legal) Download
RegLeg Specialist Panel, Finding#2 — Six-month LNAFE floor inflated into invented dual-track minimum [RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003], RegLegBrief AI Hallucination Research (June 03, 2026), https://reglegbrief.com/regulators/j1/int/bis-cpmi/cpmi-iosco-pfmi-l3-general-business-risk-2025/practitioners/public-auditors/finding/INT-BIS-CPMI-INT-001-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-v1-003/.
BibTeX Download
@misc{reglegbrief_RLB_F_INT_BIS_CPMI_IOSCO_PFMI_L3_GENERAL_BUSINESS_RISK_2025_Q003,
  author    = {RegLeg Specialist Panel},
  title     = {Finding#2 — Six-month LNAFE floor inflated into invented dual-track minimum},
  year      = {2026},
  publisher = {RegLegBrief AI Hallucination Research},
  note      = {Hallucination finding Citation ID: RLB-F-INT-BIS-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-Q003},
  url       = {https://reglegbrief.com/regulators/j1/int/bis-cpmi/cpmi-iosco-pfmi-l3-general-business-risk-2025/practitioners/public-auditors/finding/INT-BIS-CPMI-INT-001-CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025-v1-003/}
}
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