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AI Labs · White Paper · BIS-CPMI · INT · substrate v1

The model wrote conditions that don't exist
and denied carve-outs that do.

On CPMI-IOSCO's Level 3 Assessment on General Business Risks (PFMI Principle 15), both frontier models produced failures in opposite directions: they invented conditional structures not present in the text, and they denied categories of FMI explicitly carved out from the general business risk requirements.

📅 Published 7 Jun 2026 ⚙️ Methodology v2.3 ⚖️ PFMI Principle 15 · L3 Assessment 2025
📰Read the public briefing for this regulation→
What PFMI Principle 15 governs

General business risk — the principle and the Level 3 assessment

PFMI Principle 15 requires financial market infrastructures to identify, monitor, and manage their general business risk, the risk of losses arising from declining revenues or increased costs that could threaten their viability as a going concern, separate from credit and liquidity risks tied to specific transactions. The CPMI-IOSCO Level 3 Assessment published in 2025 examined how FMIs globally are implementing Principle 15, and identified specific implementation gaps, carve-outs, and conditional requirements.

The L3 assessment uses conditional legal structures throughout: particular requirement thresholds apply to FMIs above certain systemic importance thresholds, and specific FMI categories are carved out from the general requirements. Both the conditional structures and the carve-outs are load-bearing elements of the document's legal architecture. they determine which FMIs owe which obligations.

// PFMI P15 conditional structure — actual (simplified)
PFMI Principle 15: General Business Risk
├─IF: FMI above systemic importance threshold
└─APPLIES: Full P15 requirements (liquid net assets ≥ 6 months operating expenses)
├─IF: FMI category carved out in L3 assessment
└─DOES NOT APPLY: Carve-out provisions in effect← model denied this
└─MODEL ADDED: additional threshold condition not in text ✗← fabricated
Failure type 1: conditional-structure fabrication

Conditions invented — and stated with authority

Claude Opus 4.7 and Claude Sonnet 4.6 both added conditional structures to their descriptions of Principle 15 obligations that do not appear in the CPMI-IOSCO Level 3 Assessment text. The fabricated conditions were not hedged. they were presented as part of the document's actual legal architecture. A compliance officer or legal adviser using the model output to determine whether their FMI's P15 implementation is compliant receives a decision tree that includes conditions the regulator never imposed.

Model output — fabricated condition
Conditional structures added to the Principle 15 requirements that do not appear in the L3 Assessment text. Presented as binding thresholds or qualifying conditions for the general business risk obligation.
L3 Assessment (actual)
The P15 conditions and carve-outs in the L3 Assessment are explicitly stated. The fabricated conditions do not appear in the text. The requirement structure does not include the additional thresholds both models added.
Failure type 2: carve-out denial

Categories explicitly exempted — and the model said they weren't

The complementary failure is carve-out denial. The CPMI-IOSCO L3 Assessment identifies categories of FMI that are not subject to the full Principle 15 requirements. Both models, when asked whether these FMI categories owe the general business risk obligations, stated that they do, denying the carve-out that the L3 Assessment explicitly provides. An FMI compliance officer in a carved-out category who asked a model whether they are subject to full P15 requirements received an incorrect affirmative answer.

CARVE-OUT DENIAL — FMI COMPLIANCE IMPACT FMI Category A (above systemic threshold) P15: Full requirements apply ✓ model correct ✓ L3 Assessment: correct FMI Category B (carved-out category) L3 Assessment: carve-out applies Model: "P15 applies" ✗ Carve-out denied by both models Fabricated condition (not in L3 Assessment) Model added this ✗ Does not exist in text Both models: fabricated conditions + denied carve-outs in the same document
Two failure types in the same assessment: models added thresholds that don't exist (right panel) and denied exemptions that do (centre panel).
Operational signal for AI labs

FMIs, their legal advisers, and financial supervisors using AI tools for PFMI P15 compliance analysis need to verify conditional structures and carve-out applicability directly against the L3 Assessment text. The model failure pattern documented here, fabricated conditions plus carve-out denial, produces wrong compliance conclusions in both directions simultaneously.

Full hub: CPMI-IOSCO-PFMI-L3-GENERAL-BUSINESS-RISK-2025 →

Hallucination Register: reglegbrief.com/hallucination-register/