Differentially private federated learning with Byzantine-robust aggregation: A cross-domain framework for secure model training in banking and healthcare systems

Financial fraud increasingly exploits institutional boundaries: laundering networks distribute transactions across multiple banks because no single institution can observe the full pattern. Federated Learning (FL) enables collaborative detection without raw data sharing, yet practical deployment in banking environments remains constrained by three pressures. First, homomorphic encryption schemes impose high computational costs that limit real-time aggregation at scale. Second, mask-based protocols such as Google's SecAgg require O(N^2) pairwise key exchanges, which become inefficient as participant count grows. Third, existing protocols provide limited verification that submitted gradient updates are well-formed, leaving aggregation vulnerable to consistency attacks. This paper presents Dynamic Sharded Federated Learning (DSFL), a secure aggregation framework for cross-institution fraud detection. DSFL introduces Dynamic Stochastic Sharding, which partitions participants into small cryptographically ephemeral clusters of fixed size m, reducing communication complexity to O(N*m). Within each cluster, participants submit Linear Integrity Tags, additive-homomorphic commitments that allow the server to verify update consistency without decryption. The mechanism detects inconsistent updates rather than malicious gradients. An Active Neighborhood Recovery protocol handles mid-round dropouts by reconstructing orphaned masks. Experiments on the ULB Credit Card Fraud Detection dataset (284,807 transactions across 10 simulated banking nodes) show that DSFL achieves approximately 34x lower aggregation latency than Paillier-based secure aggregation at N=1000, based on analytical extrapolation from empirical baselines, while maintaining 99% recovery fidelity under a 20% dropout regime. Global fraud recall reached 91.2% (+/-0.8%), above the 68% average of locally trained models.

Federated learning enables multiple parties to train a shared model without centralizing raw data with the help of an aggregator, but introduces integrity risks once participants or infrastructure are not fully trustworthy. Two requirements are particularly important: robustness to poisoned or Byzantine client updates, and verifiability of the aggregator so that clients or third parties can audit the reported aggregation without learning individual updates. Existing work has largely treated these goals separately, and efficient public verifiability for robust, outlier-excluding aggregation remains limited. We present a verifiable federated learning protocol that makes a robust aggregation pipeline publicly auditable. Our design combines cryptographic commitments with non-interactive zero-knowledge proofs to certify both (i) cosine-similarity-based outlier exclusion and (ii) aggregation over the selected set, without revealing individual client updates to verifiers. In experiments under representative poisoning attacks, our method maintains high accuracy, with an average accuracy loss below 4% across the evaluated configurations, while keeping verification overhead practical: proof artifacts can be generated and verified within minutes at the scale studied. In summary, our results show that robust outlier exclusion and public verifiability can be jointly achieved in a federated learning setting.

Federated Learning (FL) enables multiple clients to collaboratively train machine learning models while retaining data locality, thereby enhancing user privacy. However, traditional FL frameworks rely on a centralized aggregation server and assume honest-but-curious clients, making them susceptible to both server-side inference and client-side poisoning attacks. Although recent work has explored secure and Byzantine-resilient FL protocols, they face a fundamental trade-off among privacy, integrity, and verifiability, and incur substantial computational and communication overhead due to the heavy use of cryptographic primitives. In this work, we propose PRoVeFL-a novel, modular FL framework that is Privacy-preserving, Byzantine-Robust, and ensures Verifiable aggregation. PRoVeFL employs multiple servers leveraging multi-key fully homomorphic encryption. Each client encrypts its local model updates and distributes encrypted shares to all servers. This design enables a hybrid computation model in which ciphertext operations are carefully offloaded to the plaintext domain under strict privacy constraints to efficiently evaluate complex statistical aggregation rules. PRoVeFL is compatible with a wide range of state-of-the-art Byzantine-robust aggregation algorithms (e.g., Krum, Trimmed Mean, FLTrust, norm clipping, MESAS, and more) and further enhances them with verifiability mechanisms that require minimal trust in at least one honest server. We evaluate it across different settings and demonstrate its scalability with varying numbers of parameters and participants. PRoVeFL improves runtime over the prior works, Prio and ELSA, based on distributed trust with comparable security guarantees, up to 100x and 10x, respectively.