Skip to content

FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence

A bank's risk manager reviews proposed generative AI use cases. Which use case would most likely raise the greatest concern about hallucination risk, as discussed in the context of AI and financial stability?

Unreviewed generative AI drafting of client investment advice and regulatory disclosures carries the greatest hallucination risk. Confident but false statements could be relied on by clients and regulators, creating conduct, legal and financial consequences, whereas sorting emails or formatting reports has limited impact.

  1. AUsing a model to sort incoming emails into departmental folders
  2. BUsing a model to produce draft client-facing investment advice and regulatory disclosures that are sent without human reviewCorrect
  3. CUsing a model to translate internal training slides
  4. DUsing a model to suggest formatting improvements for internal reports

Explanation

Hallucination, meaning confident but false output, is most harmful where the output is relied upon externally with legal or financial consequences. Unreviewed advice and disclosures create conduct, compliance and loss risks. The other uses are low-stakes or easily checked.

Did you get it right without looking?

One question tells you little. A timed set on The Financial Stability Implications of Artificial Intelligence shows your real accuracy, how long you take and where you lose marks.

Practise The Financial Stability Implications of Artificial IntelligenceFree diagnostic mock

More The Financial Stability Implications of Artificial Intelligence questions