← RegLegBrief Findings by regulator All AI Labs whitepapers Hallucination Register Methodology Right of reply
CPMI-IOSCO · PFMI · 2012 · Global Standard · AI Hallucination Research

The Foundational Standard
and Its Misreadings

AI models tested on the 2012 Principles for Financial Market Infrastructures produced principle mis-numbering, FMI-type conflation, and misrepresentation of the standard's legal status, against the document that underpins global oversight of payment systems, CCPs, and securities settlement.

24
Principles in PFMI
2
Models tested
3
Failure types
▶Read the public briefing for this regulation→
The standard

Twenty-four principles, five FMI types

The Principles for Financial Market Infrastructures, published by CPMI and IOSCO in April 2012, replaced and consolidated earlier standards for payment systems, central securities depositories, securities settlement systems, central counterparties, and trade repositories. The 24 principles cover governance, credit risk, liquidity risk, settlement, default management, general business risk, operational risk, access, and efficiency.

The PFMI is a soft-law international standard. it does not have direct legal force but is implemented through national regulation. Jurisdictions commit to implement via the FSB's standards-adherence framework. The distinction between the standard itself and its national implementation is legally material; practitioners using AI tools to research PFMI compliance are often asking about exactly that boundary.

— ✦ —
Failure type 1 — principle mis-numbering

Models assigned provisions to the wrong principle numbers

The PFMI's 24 principles are numbered and titled precisely. Both models produced outputs that assigned specific provisions to incorrect principle numbers, citing requirements from Principle 7 (Liquidity risk) under Principle 5 (Collateral), or attributing Principle 4 (Credit risk) content to Principle 6 (Margin). The mis-numbering is consistent in direction: the models know the substance of the requirements but conflate which numbered principle houses each requirement.

PRINCIPLE MIS-NUMBERING — DOCUMENTED EXAMPLES CORRECT MODEL OUTPUT NATURE OF ERROR P7 · Liquidity risk → cited as P5 Collateral/liquidity conflation P4 · Credit risk → cited as P6 Margin/credit conflation P17 · Operational risk → cited as P15 Risk vs. business risk swap P3 · Framework for comp. mgmt. → cited as P2 Governance framework adjacent Models know the substance but misassign principle numbers — requires document verification
Principle mis-numbering across both models: substance broadly correct, principle number citation incorrect. Document verification required for any PFMI principle citation.
Failure type 2 — FMI-type conflation

Principles applied across FMI types without the applicable scoping

Several PFMI principles apply differently depending on whether the financial market infrastructure is a payment system, a CCP, a central securities depository, a securities settlement system, or a trade repository. The principles themselves contain scoping language and the PFMI's key considerations vary by FMI type. Both models produced outputs that applied principle requirements without the FMI-type scoping, describing requirements as universal across all FMI types when the PFMI text scopes them differently.

Model output — unscopped
Described margin requirements under Principle 6 as applying uniformly to all FMI types. Applied CCP-specific requirements to payment systems and CSDs without noting the scoping.
PFMI — actual scoping
Principle 6 (Margin) applies to CCPs and certain other FMIs. Key considerations vary by FMI type. Payment systems have different applicable principles. The scoping is stated in the PFMI text itself.
Failure type 3 — legal status

PFMI described as having direct legal force it does not have

The PFMI is a soft-law international standard published by CPMI and IOSCO. It does not have direct legal force in any jurisdiction. Jurisdictions implement it through national law and regulation, with varying degrees of fidelity and scope. Both models at various points described the PFMI as "legally binding" or as imposing direct obligations on FMIs, misrepresenting the relationship between the international standard and national implementation.

This failure type is significant for practitioners advising on PFMI compliance questions that turn on whether an obligation derives from the international standard or from national implementation. The distinction matters for determining which authority can grant an exemption, which law governs enforcement, and how to handle conflicts between jurisdictions.

Model output — status error
Described PFMI principles as "legally binding requirements" on FMIs. Cited the PFMI as the direct source of compliance obligations without noting national implementation as the actual legal source.
PFMI — actual status
International soft-law standard. No direct legal force. Implemented through national regulation — in the EU via EMIR and CSDR, in the US via CFTC/SEC rules, in the UK via FCA/BoE rules. The national instrument is the legal source of obligations.
— ✦ —
Operational signal

What FMI legal and regulatory teams need to know

The PFMI is the foundational document for FMI regulation globally. It is also a document that AI models appear to have absorbed well enough to produce plausible-sounding principle summaries, but not accurately enough to be relied upon for principle numbers, FMI-type scoping, or legal status. All three failure types documented here are consequential for practitioners whose work depends on precise identification of which principle applies to which FMI type, and whether the obligation derives from the international standard or national law.

Full hub: CPMI-IOSCO-PFMI-2012 →

Hallucination Register: reglegbrief.com/hallucination-register/