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

A dealer uses generative AI to summarize research and draft trade ideas for traders. Which risk is most specific to this use of generative AI?

The most specific risk is hallucination: generative AI can produce plausible but incorrect content, and traders relying on it without verification may make poor decisions or breach compliance standards. Human review and validation controls mitigate this risk.

  1. AHallucinated or inaccurate content that traders may rely on without verificationCorrect
  2. BInability to process any text data
  3. CGuaranteed elimination of conduct risk
  4. DHigher exchange clearing fees

Explanation

Generative models can produce plausible but false statements (hallucinations). If traders act on unverified output, losses or compliance issues can result. Such tools do not eliminate conduct risk and have no direct link to clearing fees.

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