Skip to content
Mobiloitte South Africa
Prudential Authority Expectations for AI in SA Banking

Prudential Authority Expectations for AI in SA Banking

The Prudential Authority, housed within the South African Reserve Bank, regulates the prudential safety and soundness of financial institutions. AI raises specific prudential considerations that the PA examines through its supervisory practice and emerging AI-specific guidance.

This article walks through what PA prudential expectations require for AI in SA-licensed banks and other prudentially regulated institutions, with specific attention to model risk, operational resilience, cyber resilience, and outsourcing.

Model risk management for AI

PA model risk management expectations apply to AI models used in regulated activities. The expectations align with international model risk practice, SR 11-7 in the US, SS1-23 in the UK, MAS MRM in Singapore, calibrated to SA context.

Core model risk expectations applied to AI

● Model inventory, every material model including generative AI, foundation models, RAG systems, AI agents
● Model documentation, purpose, methodology, training data where known, performance characteristics, limitations, intended use, monitoring approach
● Initial validation by an independent function before deployment in production, with appropriate technical capability
● Performance monitoring ongoing post-deployment, with defined metrics and triggers for revalidation
● Periodic revalidation calibrated to criticality
● Change management for material model changes including model updates, prompt template changes, RAG knowledge base updates
● Model risk reporting to senior management and the Board with appropriate periodicity
● Decommissioning documented when a model is retired

For generative AI specifically, the institution remains accountable for model risk regardless of where in the AI supply chain the risk originates. Foundation models that the institution did not train still attract model risk obligations, the institution validates what it can validate, documents what it cannot, and accepts residual risk explicitly with appropriate senior management visibility.

Operational risk and resilience

AI is part of the institution's broader operational risk profile. PA expectations on operational risk extend to AI workloads.

● AI risk classification within the broader operational risk framework, concentration, complexity, dependency
● Availability and capacity planning for AI workloads, recognising that AI infrastructure has different scaling characteristics than traditional banking infrastructure
● Disaster recovery for AI components including model artefacts, training data, inference systems, knowledge bases
● Business continuity planning for AI-dependent customer-facing functions, what the institution delivers if foundation model vendors are unavailable, how degraded modes operate
● Cost management for AI workloads, production AI costs can scale unpredictably; cost monitoring is part of operational risk management

Cyber resilience for AI

PA cyber resilience expectations cover AI-specific cyber risks. AI workloads are not exempt from cyber resilience expectations; they attract additional considerations specific to AI.

● Prompt injection defences for LLM workloads, including for both adversarial inputs from external sources and inadvertent injection from documents or knowledge bases
● Model security, protecting deployed models from extraction, weights from theft, fine-tuned variants from unauthorised access
● Training data poisoning defences for institutions training or fine-tuning on their own data
● Model extraction attack defences for institutions exposing model behaviour through APIs
● Supply chain security for foundation model dependencies
● Identity and access management for AI systems, deployment access, prompt management, RAG administration, agent configuration
● Logging and detection of AI-specific incident patterns

Outsourcing and third-party arrangements

Material AI dependencies, foundation model vendors, cloud AI services, specialised AI tooling, are typically material outsourcing arrangements under PA expectations.

● Due diligence on AI vendors covering capability, financial strength, security posture, supervisory engagement history
● Contractual provisions addressing supervisory access, operational requirements, breach notification, exit support
● Ongoing oversight, performance monitoring at the institution level, periodic reassessment, contract review
● Exit planning that is operationally credible, what does the institution do if a critical AI vendor relationship terminates, becomes commercially unviable, or is the subject of regulatory action
● Cross-border data flow implications where AI vendors are foreign-located, with attention to POPIA cross-border requirements and supervisory access expectations
● Sub-contractor visibility, foundation model vendors may depend on other parties (training compute, base model providers, content moderation services); the institution needs to understand the chain

Senior management responsibility

PA expectations on senior management responsibility extend to AI. Specific senior management functions have AI implications:

● Risk management, the CRO or equivalent has accountability for AI risk integration into the broader risk framework
● Technology and operations, accountability for AI infrastructure, AI operational resilience, AI vendor management
● Compliance, accountability for AI compliance with POPIA, FSCA, NCR, FICA, and other applicable frameworks
● Information security, accountability for AI security including AI-specific cyber risks
● Internal audit, independent review of AI governance, model risk management, and AI risk integration

The institution's senior management framework should explicitly address AI rather than leaving AI responsibilities ambiguous between traditional functions. Documented allocation of AI-related senior management responsibilities supports PA examination engagement.

Common implementation pitfalls

● AI workloads treated as exempt from prudential expectations because they are 'experimental', until they aren't experimental anymore but prudential coverage hasn't followed
● Model risk management treated as a Basel-driven exercise without extension to generative AI workloads
● Foundation model vendor contracts signed by procurement without prudential governance review
● Cyber resilience defences inherited from general technology workloads without AI-specific additions
● Exit planning that is theoretical, no demonstrated capability to actually exit a critical AI vendor relationship
● Senior management responsibilities for AI ambiguously allocated, leaving gaps under examination

The shift to make

Stop treating AI workloads as a special category outside the institution's prudential operating model.

Start treating them as fully in scope for prudential expectations, with AI-specific operational additions where the standard playbook does not adequately cover the workload type. The prudential framework remains sound for AI; the operating discipline within each prudential domain needs AI-specific calibration.

Institutions that operate this way pass PA examinations constructively and scale AI capability with the operational discipline the workloads require. Institutions that treat AI as prudentially exempt eventually discover otherwise, typically during an incident or examination, at a higher cost than the cost of integrating AI into prudential operations from the start.

Tanya Singhal

Tanya Singhal

Senior Marketing Executive

As a Senior Marketing Executive, I blend strategy and creativity to help brands grow in the digital space.

Looking for the Wider Global AI Software Capability Map?

For broader engineering depth and international delivery scale, explore our wider global services and platform capabilities.

Explore the wider global services portfolio
Global AI Strategic Discussion

Read All Blogs

Explore our complete library of technical deep-dives, industry reports, and digital strategy perspectives.

POPIA/FSCA/SARB-Aligned AI for South African Financial Services
SARB Guidelines19 May

POPIA/FSCA/SARB-Aligned AI for South African Financial Services

POPIA, FSCA, and SARB each apply to AI in SA financial services. Here is what AI compliance under all three actually requires — and the cross-Africa context that matters.

Read More →
POPIA Section 71 and Automated Decision-Making
FSCA Regulations19 May

POPIA Section 71 and Automated Decision-Making

POPIA section 71 governs solely automated decision-making. Here is what it actually requires, when exemptions apply, and how to operationalise meaningful safeguards.

Read More →
Treating Customers Fairly Applied to AI
FSCA Regulations19 May

Treating Customers Fairly Applied to AI

FSCA's Treating Customers Fairly framework applies to AI-driven customer interactions. Here is what each of the six TCF outcomes requires when AI is involved.

Read More →
Prudential Authority Expectations for AI in SA Banking
FSCA Regulations19 May

Prudential Authority Expectations for AI in SA Banking

The Prudential Authority within SARB regulates AI as part of broader prudential oversight. Here is what PA expectations require for model risk, resilience, and outsourcing.

Read More →
Cross-Africa Data Protection for SA-Headquartered Groups
FSCA Regulations19 May

Cross-Africa Data Protection for SA-Headquartered Groups

SA-headquartered financial groups operate across Africa. Here is how POPIA, NDPA, Kenya DPA, Ghana DPA, and other African frameworks interact for AI workloads.

Read More →
B-BBEE Strategy for AI Procurement and Partnership
FSCA Regulations19 May

B-BBEE Strategy for AI Procurement and Partnership

B-BBEE shapes SA enterprise AI procurement and partnership decisions. Here is how B-BBEE scoring works, what AI-specific considerations apply, and operational discipline.

Read More →