FedProxy: Federated Fine-Tuning of LLMs via Proxy SLMs and Heterogeneity-Aware Fusion

Federated Split Learning has been identified as an efficient approach to address the computational resource constraints of clients in classical federated learning, while guaranteeing data privacy for distributed model training across data owners. However, it faces some critical challenges when such a training strategy meets large language models (LLMs) for fine-tuning. Such challenges include setting the cutlayer adaptively across different clients to address the data and device heterogeneity issues, which affect the system performance significantly. In addition, efficiently reducing the communication overhead during the fine-tuning procedure is also another challenge. No work tries to address these challenges. To bridge this gap, we propose SplitTF, an adaptive federated split learning system for LLMs fine-tuning. SplitFT enables different clients to set different cut layers according to their computation resources and trained model performance. SplitFT also proposes to reduce the LoRA rank in cutlayer to reduce the communication overhead. In addition to simulating the heterogeneous data in real-world applications for our proposed split federated learning system, we propose a length-based Dirichlet approach to divide the training data into different clients. Extensive experimental results show that our proposed approach outperforms the state-of-the-art approach for fine-tuning time efficiency and model performance based on various popular benchmarks.

Low-rank adaptation (LoRA) has emerged as a powerful tool for parameter-efficient fine-tuning of large language models (LLMs). This paper studies LoRA under a federated learning setting, enabling collaborative fine-tuning across clients while preserving parameter efficiency. We focus on a highly heterogeneous regime in which clients share only partial structure and a substantial subset may be contaminated. We propose Collaborative Low-rank Alignment and Identifiable Recovery (CLAIR), a contamination-aware framework that relies only on preliminary local estimators. Its formulation applies broadly, from linear regression to neural network and LLM modules, whenever local adaptation can be represented by matrix-valued updates. CLAIR recovers the shared LoRA subspace and detects contaminated clients via a structured low-rank plus block-sparse decomposition. We prove exact recovery of the shared LoRA subspace in the noiseless case, stable recovery under preliminary estimation error, and consistent collaborative-set recovery under mild separation conditions. We further quantify the gain from CLAIR refinement: it reduces off-subspace estimation error through cross-client averaging while preserving client-specific variation within the shared LoRA subspace, thus improves over local fine-tuning whenever this oracle gain outweighs the costs of subspace estimation and benign-client heterogeneity. Empirically, we demonstrate the benefits of CLAIR by fine-tuning a Transformer architecture on a text-copying task. The results show accurate contamination detection and improved benign-client performance compared with local fine-tuning and non-robust federated averaging.

Fine-tuning large language models (LLMs) on domain-specific data is essential for downstream adaptation. In many deployments, a participant cannot hold the complete model locally. This happens because the model owner keeps the full model proprietary, or because the participant lacks sufficient compute resources. Split Learning (SL) addresses this by partitioning the model between the participant and a server so that only a small portion runs locally. When the underlying data is additionally distributed across multiple institutions with privacy requirements, Federated Learning (FL) further enables collaborative training across participants by sharing only model updates instead of raw data. In this combined setting, each client transmits intermediate activations to the server, and for LLM fine-tuning, this exchange poses an inherent privacy paradox. The autoregressive nature of LLMs causes the transmitted activations to leak the input, and existing perturbation-based defenses are fundamentally ineffective in this setting. We address this leakage through a learned obfuscate-and-recover scheme that protects participants' private datasets while still allowing an independently deployable model to be trained on the server side. Experiments demonstrate that our approach achieves strong privacy protection with modest utility loss and system overhead, making split-based federated LLM fine-tuning practically viable.