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FRM Part II · FRM Exam Part II · Advances in Artificial Intelligence: Implications for Capital Markets Activities

A broker-dealer replaces its keyword-based trade communications surveillance with a natural language processing model that flags context-dependent conduct risk. Which benefit is most consistent with the use of NLP in compliance surveillance?

NLP in surveillance can read unstructured communications such as chats and emails and detect suspicious intent from context, going beyond rigid keyword lists. It does not remove human review, guarantee fewer false alerts, or replace independent model validation.

  1. AIt removes the need for human review of alerts because the model gives definitive findings
  2. BIt can identify suspicious intent in unstructured text such as chats and emails beyond fixed keyword listsCorrect
  3. CIt guarantees a lower number of false positives in every market condition
  4. DIt makes model validation unnecessary because the model is trained on the firm's own data

Explanation

NLP can interpret context and unstructured language, so it can detect conduct risk that fixed keyword lists miss. It does not eliminate human review, guarantee fewer false positives, or remove the need for validation.

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