AI Risk Management for Financial InstitutionsStartupsValidMindRecently announced the completion of a seed round of financing of US$8.1 million. This round of financing was led by Point72Ventures and participated by several venture capital firms. Currently, the company's total financing amount has reached US$11.1 million.
In the financial industry, banks are under pressure to expand their use of AI while ensuring that these technologies meet regulatory requirements. According to a report by the U.S. Consumer Financial Protection Bureau, banks using chatbots are at risk of providing inaccurate information to customers, thereby undermining consumer trust. In addition, new regulations such as the EU's AI Act and the proposed U.S. AI Bill of Rights are pushing the limits of current model risk management (MRM) processes and banks' traditional MRM systems.
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“MRM teams at financial institutions are struggling to cope with the acceleration of business to deploy more AI solutions and the increased pressure from regulators to ensure compliance,” Jonas Jacoby, CEO and co-founder of ValidMind, told VentureBeat.
Jacoby explained that while existing regulations such as SR11-7 in the U.S. do not yet explicitly mention AI, they already cover AI models. “Banks outside the U.S. will be one step ahead of other banks because they are already regulated,” he said.
However, most banks’ model risk management processes involve a lot of manual work. “We know from talking to clients that manually updating these records accounts for about 30% of the model risk management team’s workload,” Jacoby said.
That’s where ValidMind comes in. The startup’s platform automates parts of the process of writing, testing, and validating model documentation to meet regulatory requirements.
“If you have a data scientist making $400,000 a year and they spend 50% writing documentation, if we can automate 80% of that, that’s 16 hours saved per week,” Jacoby said.
He believes this will enable financial institutions to accelerate AI adoption without hindering innovation. “I don’t think regulation hinders innovation. It hinders it if you don’t apply the proper tools,” Jacoby commented.
The new funding will support ValidMind’s goal of building long-term partnerships while expanding its sales, marketing, and customer success teams.
Jacoby said the successful funding round is a testament to investor interest in AI governance solutions. “We successfully secured a very highly subscribed funding round, which is very exciting for us as a company and team,” he commented.
While AI model risk management is still an emerging field, ValidMind’s solution appears designed specifically for the growing intersection of AI innovation and regulation in the financial services industry.
Jacoby envisions ValidMind eventually evolving into a “certification agency” that provides on-demand validation services to banks’ model risk managers.
He explained ValidMind’s long-term vision: “How do we help companies add more trust as they deploy AI, and that certainly includes what we’re doing today in terms of providing a small-scale AI risk compliance in terms of regulatory requirements.”
As AI becomes increasingly critical in the financial services industry, ValidMind aims to ensure the integrity of the entire AI model lifecycle.