FRM Part II · FRM Exam Part II · Advances in Artificial Intelligence: Implications for Capital Markets Activities
A bank uses a generative AI tool to summarize market news for its traders. A risk officer is concerned that incorrect but plausible outputs could trigger trades across the desk. Which control best addresses this specific risk?
Human review and validation of outputs against reliable sources, with ongoing quality monitoring, is the best control. Generative models can produce plausible but wrong content, so outputs should not drive trades unchecked. Greater randomness, less logging or trusting vendor claims would worsen rather than reduce the risk.
- ARequire human review and validation of outputs against reliable sources before they feed into trading decisions, with monitoring of output qualityCorrect
- BIncrease the model's temperature setting to produce more varied outputs
- CRemove all logging of prompts to reduce data storage costs
- DRely on the vendor's marketing claims of accuracy
Explanation
Hallucinated yet plausible outputs are mitigated by human-in-the-loop checks, validation and ongoing monitoring. Higher temperature increases randomness, and removing logs weakens oversight.
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