ai-risk-management-startup-validmind-raises-$8.1m-to-help-banks-comply-with-regulations

AI Risk Management Startup ValidMind Raises $8.1M To Help Banks Comply With Regulations

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ValidMind, a startup focused on AI and model risk management for financial institutions, announced today that it has raised $8.1 million in seed funding. The round was led by Point72 Ventures, with participation from several other venture capital firms.

The new capital comes as banks face growing pressure to expand their use of AI, while ensuring these technologies comply with regulations. According to a report from the Consumer Financial Protection Bureau, banks that use chatbots risk providing inaccurate information to customers, diminishing consumer trust. In addition, new regulations like 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 legacy MRM systems at banks.

As ValidMind CEO and Co-founder Jonas Jacobi recently explained in an interview with VentureBeat, “The MRM teams at financial institutions are struggling to keep up amid increased pressure from the business to deploy more AI solutions faster and from regulators to ensure compliance.”

How ValidMind helps with compliance

Jacobi explained that current regulations like SR 11-7 in the U.S. already cover AI models, even if they don’t explicitly mention AI. “The banks out of the U.S. will have a head start on all the other banks, because they’ve already been regulated,” he said. 

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However, the model risk management process at most banks involves extensive manual work. “We know, talking to our clients that that represents about 30% of the model risk management teams effort to keep those records updated manually,” Jacobi stated. 

This is where ValidMind comes in. The startup’s platform automates parts of the model documentation, testing and validation process required for regulatory compliance. 

According to Jacobi, “If you have a data scientist that is $400,000 a year fully loaded, and they’re spending 50% writing documentation, if we can automate 80% of that, that’s 16 hours saved per week.”

He believes this will allow financial institutions to accelerate AI adoption without hampering innovation. “I don’t think regulation will hamper innovation. It will if you’re not applying proper tooling to it,” Jacobi commented.

Investor interest in AI governance solutions 

The new funding will support ValidMind’s goal of establishing itself as a long-term partner for banks as they expand their use of AI. The company also plans to grow its sales, marketing and customer success teams.

Jacobi said the successful funding round shows investor interest in AI governance solutions. “The fact that we managed to get a very highly oversubscribed round of financing was very exciting for us as a company and team,” he remarked.

The startup’s total funding now stands at $11.1 million after the new seed round. While AI model risk management is still a nascent field, ValidMind’s solution appears tailored to the growing intersection of AI innovation and regulation in financial services.

Becoming a ‘certifying authority’ for AI

Jacobi envisions ValidMind eventually evolving into a “certifying authority” that provides validation-on-demand services to offload bank’s model risk management staff. 

He explained ValidMind’s long-term vision: “How do we help companies add more trust into their deployment of AI, meaning that that includes obviously what we’re doing today, which is sort of a small risk AI risk, compliance side with regulatory requirements?”

As AI becomes more critical in financial services, ValidMind aims to ensure integrity across the entire AI model lifecycle.

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