AI EDUCATION: What Is FedRAMP?

The small fish often swim in the big fish’s wake. 

So it is with technology, an area where small businesses, in particular, are often flailing for guidance on what to do and how to do it, but when it comes to quickly evolving and emerging areas of technology like AI, the leaders of large enterprises may be just as bewildered as the leaders of their smaller counterparts.  

So, even the biggest business fish often look up to the whale shark of employers in the U.S.: The federal government. The government establishes standards not just through direct regulation—think of FDA inspectors looking for unsafe or unsanitary conditions in the  pharmaceutical industry, or the USDA on farms—but also by adopting rules for who it will and won’t do business with. 

And so we have FEDRAMP, the Federal Risk and Authorization Management Program. FEDRAMP is a program to ensure that cloud service providers meet requirements set in the Federal Information Security Management Act, or FISMA. FEDRAMP authorization means that a technology provider is cleared to work with sensitive government information, particularly in the realm of national defense, but per federal directive, any cloud provider working with government data must be FEDRAMP authorized. More important to us, however, is that FEDRAMP establishes a national baseline for compliance and trustworthiness within AI infrastructure that can be adopted and adapted by related industries, like finance. 

What Is FEDRAMP (And what is FISMA, for that matter) 

FISMA, passed in 2002 before seemingly the entire information universe schlepped itself onto the cloud, is a law requiring every federal agency to develop and implement information security across their technologies to prevent unauthorized access, use, modification, disruption or destruction of protected data, so data kept by the government is always safe, accurate and available. 

In response to FISMA, almost every federal agency was conducting its own reviews and doing its own information security work, which became an inefficient and ineffective approach when it came time to migrate the U.S. government to cloud technology, thus, in 2011, FEDRAMP was created to standardize the assessment, authorization and monitoring of cloud services, adopting the baselines established under FISMA by the National Institute of Standards and Technology (NIST). 

Basically, cloud providers can qualify for FEDRAMP authorization at three different levels: Low Impact, for services working with non-sensitive and unclassified information; Moderate Impact, for services working with controlled or sensitive unclassified information; and High Impact, for services working with highly sensitive, controlled unclassified information. The Department of War has its own classification system. Each level has its own standards of security controls. Authorization can be achieved via one of two routes, referral to the FEDRAMP management office via a specific federal agency, or authorization via a Joint Authorization Board consisting of representatives from key departments and agencies. Once authorized, the cloud provider is placed in a FEDRAMP marketplace—a searchable marketplace—where other federal agencies can find and adopt their services. 

Achieving FEDRAMP Authorization 

While FEDRAMP requirements themselves are extensive and onerous, the process for authorization really has three components: 

• A third-party security assessment report assessing a cloud provider’s security plan. This assessment must be conducted by a FEDRAMP-accredited third-party assessment organization. Out of this assessment, the provider is expected to draft a system security plan (SSP) to address security issues. 
• Review and ruling from agency or Joint Authorization Board leading to, one, an authority to operate across all federal agencies, and, two, a listing within the FEDRAMP marketplace. 
• Continuous monitoring, ongoing assessment and reauthorization. 

Where Does AI Come In? 

AI is dependent on cloud services, and thus any AI engaged by the federal government, including systems for national defense and security, is operating on FEDRAMP-authorized infrastructure. In fact, in the rush to deploy AI, even the more accelerated process to federal approval offered by FEDRAMP in 2011 has become too slow to meet the technology needs of the governemtn. Thus, in March 2025, the government announced FedRAMP 20x, a program to accelerate FedRAMP approvals for the Low and Moderate Impact authorization levels by allowing service providers to bypass the need for agency sponsors.  

FedRAMP20x, which went into effect in August, is an attempt to get more cloud service providers approved to facilitate the massive adoption of AI systems by the federal government. The name itself may be a reference to an effort to improve the rate of approvals by 20 times. The program purports to prioritize certain AI cloud service providers who offer services in-demand with specific safety and security features, guarantee certain data protections, and who demonstrate an ability to quickly bring their services up to FEDRAMP specifications. 

The new authorization program launched with three AI services slated to be fast-tracked, from OpenAI, Perplexity and Google. 

FEDRAMP, AI & Finance 

As we’ve said, FEDRAMP establishes a trusted security baseline for cloud infrastructure—the foundation on which most modern AI systems are built. Banks, insurers, and fintech firms rely heavily on cloud providers to train, deploy, and scale AI models, but they operate in a highly regulated environment with strict data protection requirements. FEDRAMP authorization may signal to these firms that a cloud provider already meets rigorous federal standards, giving them confidence that all of their sensitive financial and customer data used in AI systems is properly safeguarded. 

FEDRAMP may also help align financial services with regulatory expectations like FISMA. As regulators scrutinize AI for risks such as data leakage, model bias, and operational resilience, FedRAMP provides a structured control environment that supports compliance and auditability. This is especially valuable as financial institutions themselves partner with cloud providers and cloud-based AI vendors. 

FEDRAMP accelerates innovation by reducing friction in vendor approval and procurement. Financial institutions can more quickly adopt AI tools from cloud providers that already hold FEDRAMP authorizations, avoiding lengthy, duplicative security reviews. This “pre-vetted” ecosystem helps the financial services industry as its AI capabilities evolve rapidly; it allows firms to experiment and scale new use cases—such as fraud detection, underwriting, and personalized financial advice—while maintaining high security and compliance standards.