AI Governance for Community Banks and Credit Unions
Your employees are already using AI. The question isn't whether to allow it — it's whether you're governing it before your examiner asks.
Community banks and credit unions face a unique challenge: they need efficiency gains from AI tools (especially with tight staffing), but they don't have the compliance teams of a JPMorgan.
The Reality at Community Institutions
At most community banks and credit unions under $10B in assets:
- 3-8 employees are actively using ChatGPT, Copilot, or similar tools
- Most usage is unapproved — employees found these tools on their own
- The compliance team is 1-3 people juggling BSA, CRA, fair lending, and everything else
- Your examiner will ask about it at your next safety and soundness exam
What Regulators Expect
The OCC, FDIC, NCUA, and state regulators are aligning around these expectations:
- Know what AI tools your institution uses — approved and shadow
- Have a written policy — even a basic one
- Classify risk — not all AI is the same
- Document decisions — why you approved or rejected each tool
- Train your people — employees need to know the rules
The new Treasury FS AI RMF provides the baseline. Examiners will increasingly reference it.
The 5-Step Governance Plan
Step 1: Discovery (Week 1)
Send a simple survey to all employees: "What AI tools do you use for work?" You'll be surprised at what you find.
Step 2: Policy (Week 2)
Write a 2-page AI Acceptable Use Policy covering approved tools, prohibited data types (NO member PII, NO account numbers), who approves new tools, and consequences for violations.
Step 3: Risk Classification (Week 3)
| Tier | Description | Examples | Controls | |------|------------|----------|----------| | Low | No member data access | Grammarly, scheduling | Acknowledge policy | | Medium | Non-sensitive institutional data | Research, document drafters | Vendor review + annual check | | High | Member data or decision influence | Lending tools, fraud detection, chatbots | Full due diligence, ongoing monitoring, board reporting |
Step 4: Vendor Due Diligence (Week 4)
For medium and high-tier tools: SOC 2 Type II, DPA in place, no model training on your data, US-based processing, GLBA compliance attestation.
Step 5: Documentation and Training (Week 5)
Document all decisions. Train all employees (30-minute session + signed acknowledgment). Brief the board. Set annual review reminder.
What Your Examiner Will Ask
- "Does the institution have a policy governing the use of AI?"
- "What AI tools are employees using?"
- "How does the institution evaluate third-party AI risk?"
- "Has the board been briefed on AI risks?"
If you can answer these with documentation, you'll pass. If you can't, expect a finding.
Scale It Without Adding Headcount
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