Abstract
Regulated financial institutions operating under data-residency rules need tenant-owned language models that can run inside the institution's perimeter. This paper combines two related FAOS studies into one mechanism-and-control article. First, it reports a reduced-power proof-of-mechanism study of ontology-amplified distillation: a Qwen3.6-27B student is adapted to the Foundation AgenticOS ontology through supervised fine-tuning on frontier-teacher trajectories and ontology-grounded direct preference optimization (DPO), trained locally on a single Apple M5 Max from 47 synthetic, English-language, cross-domain preference pairs. On 40 held-out Vietnamese financial-domain tasks, the distilled student grounds 36 of 40 tasks (grounded rate 0.90; mean ontology term-coverage r_onto = 0.95 on a metric floored at 0.50), equal to the GPT-5 frontier baseline, which also grounds 36 of 40. The outcome is underpowered to establish equivalence: the paired-difference 95% confidence interval spans +/-4 tasks, and the run does not test or show the pre-registered amplification prediction that the student should exceed the frontier. Second, the paper consolidates a contextuality-audit method for enterprise-agent routing. In a separate negative-results pilot, the corrected canonical Contextuality-by-Default degree is zero for all Phase 1.3 groups in both the local-Qwen run and an explicitly labeled Gemma replication check; the useful signal is direct influence and construct coupling, not surviving residual contextuality. Together, the studies pair an ontology-grounded model-building mechanism with a governance diagnostic for deciding when apparent disagreement should trigger prompt standardization, multi-agent synthesis, or human review. The evidence supports neither deployability, safety, superiority, statistical equivalence, nor a contextuality-positive routing rule.
Explore similar work
Aug 3, 2026cs.AI
On-policy (self) distillation (OPSD) is increasingly adopted for language-model post-training. It strengthens the teacher with privileged information but can induce a privilege illusion: the student learns privilege-dependent behavior it cannot reproduce from its inference-time context, yet behaves as if the training-time privileged information remained available, ultimately degrading performance. In this paper, we identify information asymmetry between the privileged teacher and the student at inference as the root cause of this failure in OPSD. To resolve this asymmetry, we propose Dual-Anchored Policy Distillation (DAPD), a unified framework with two levels of anchoring. Dual-Path Anchoring (DPA) introduces a self-conditioned bridge and aligns reference and rollout behavior along two matched-information paths, preventing privilege-dependent behavior from being transferred to the inference-time student. Dual-Source Anchoring (DSA) applies these paths in both reference-to-rollout and rollout-to-reference directions, reducing reliance on privileged reference guidance while preserving correctness supervision. Extensive experiments show that DAPD significantly alleviates privilege illusion, outperforming OPSD on Qwen3-4B by +2.00 points on average across tasks. Notably, its gains persist across scales, reaching +2.69 at 4B and +2.78 at 32B.
Jianyu Wu, Yizhou Wang, Encheng Su +2
May 14, 2026cs.CL
Large language models in regulated financial workflows are governed by natural-language policies that the same model interprets, creating a principal--agent failure: outputs can appear compliant without being compliant. Existing evaluation measures task accuracy but not whether governance constrains behaviour at the decision rationale level -- where regulated decisions must be auditable. We introduce five governance metrics that quantify policy compliance at the rationale level and apply them in a synthetic banking domain to compare text-only governance against mechanical enforcement: four primitives operating outside the model's interpretive loop. Under text-only governance, 27% of deferrals carry no decision-relevant information. Mechanical enforcement reduces this rate by 73%, more than doubles deferral information content, and raises task accuracy from MCC~
0.43 to
0.88. The improvement is driven by architectural separation: LLM-generated rationales under mechanical enforcement show comparable CDL to text-only governance -- the gain comes from removing clear-cut decisions from the model's control. A causal ablation confirms that each primitive is individually necessary. Our central finding is a governance-task decoupling: under structural stress, text-only governance degrades on both dimensions simultaneously, whereas mechanical enforcement preserves governance quality even as task performance drops. This implies that governance and task evaluation are distinct axes: accuracy is not a sufficient proxy for governance in regulated AI systems.
José Manuel de la Chica Rodríguez, Carlos Martí-González
May 20, 2026cs.CL
Can post-trained large language models (LLMs) further improve themselves using only unlabeled prompts, without external teachers or feedback from tools? We study this setting starting only from unlabeled seed questions with no ground-truth solutions, across three reasoning domains: math, science, and coding. We propose Self-Verified Distillation, a simple post-training refinement algorithm in which the model generates candidate solutions to these seed questions, filters them using prompt-based self-verification, and trains on the resulting self-curated dataset. Inspired by the UQ benchmark's use of multiple validators to screen candidate answers to hard unsolved questions, we adapt this validation-based filtering idea to self-training: the model filters its own generated solutions through a three-stage cascade of cycle-consistency, factuality, and correctness checks, accepting a solution only if it passes all stages with unanimous judge votes. We find that sampling more candidate generations and using a larger verification budget during training data construction produces higher-quality self-curated data and, in turn, better reasoning models. We then train Qwen3 models at multiple scales with Self-Verified Distillation and obtain gains across all three domains. For Qwen3-4B, our method improves aggregate held-out pass@1 by +16.7 points in math (AIME26 and HMMT), +11.1 points in science (GPQA Diamond and HLE), and +8.3 points in coding (LCBv5 and LCBv6), with gains also extending to 0.6B and 8B models. Compared to our test-time-only baseline (UQ-TTC), which improves performance by spending extra compute at inference time, Self-Verified Distillation achieves better performance in most settings while requiring only a single inference call at test time.
Tony Lee, Percy Liang