FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence
A regulator notes that many financial institutions rely on the same few third-party AI model and cloud providers. From a financial stability perspective, what is the main cyber-related concern arising from this concentration?
The main concern is correlated failure: if many institutions depend on the same AI or cloud providers, one cyberattack or outage can hit them simultaneously, turning an operational incident into a systemic event. Outsourcing does not transfer accountability or remove the single point of failure.
- AA compromise or outage at one provider could simultaneously affect many institutions, creating correlated operational failuresCorrect
- BConcentration automatically improves security because fewer providers are attacked
- CInstitutions will have lower exposure to operational risk because vendors absorb all losses
- DProvider concentration only affects pricing and has no resilience implications
Explanation
Common dependencies create single points of failure: one cyber incident or outage can propagate across institutions at once, making failures correlated and potentially systemic. Concentration does not guarantee security, and outsourcing does not transfer all responsibility or loss.
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