Governance at the Boundary: How Agent Decomposition Degrades Policy Compliance

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.

Financial institutions are delegating consequential decisions to agentic AI systems that decompose goals, coordinate models and tools, and act with little oversight. Yet agentic AI governance in FinTech is under-investigated. We argue the binding governance constraint is not capability but verifiability. We define the Verifiability Gap as the shortfall between the verification delegated authority demands and the explainability and reproducibility retained after a decision. It is indexed to a verifier, evidentiary standard, and audit lag. We develop a multilevel governance theory for agentic AI and test its mechanisms in three studies over nine model versions, from a three-billion-parameter local model to a commercial frontier system. Study 1 shows that provider releases alter historical financial actions, and that the controls replay needs belong to the provider: the frontier model rejects temperature, top_p and top_k outright and exposes no random seed. Under the tightest controls each endpoint allows, a local model reproduced 320 of 320 executions, hosted models 319 of 320 and 959 of 960. Study 2 shows that orchestration is a latent policy layer. Architecture changes final actions, and no execution record repeated in any configuration at any scale. The frontier model reproduces its own actions more often than the local ones, its record no better, and loses a comparable share of its differentiation. Capability buys a higher starting point, not auditability. Study 3 shows two deterministic credit-model versions each reproduce their current action perfectly, yet the current cannot recover a historical one. We conceptualize reproducibility as a governance profile, not a scalar, yielding evidence-contingent delegation: authority is defensible only while retained evidence substantiates its exercise. Beyond finance, the framework extends to other high-stakes domains requiring auditability.

Financial institutions are beginning to deploy agentic workflows in credit, fraud, collections, compliance, and operational control. Governance remains largely component-centric: each model or agent is specified, tested, authorized, and monitored locally. That is insufficient when institutional risk arises from the joint behavior of many locally acceptable components. We call this gap constitutional non-compositionality: local compliance checks need not compose into acceptable collective outcomes such as bounded disparate impact, market integrity, or traceable accountability. We propose ARIA as a finance-specific reference architecture and falsifiable research agenda for agent-population governance. It organizes six capabilities across normative-accountability, execution-control, and assurance-learning planes: policy specification, population-level observed-versus-expected behavior monitoring (M2), bounded authority, runtime containment, adaptive policy change, and preserved human oversight competence. Two simulations illustrate shared-signal thin-file exclusion under local controls and earlier warning from observed-versus-expected distributional monitoring in a constructed drift regime. The contribution maps these controls to fair-lending, EU AI Act, model-risk, and conduct-supervision evidence needs, and closes with a validation agenda rather than a production-effectiveness claim.