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

A risk manager assesses a vendor-supplied AI model for fraud detection that is also used by many other banks, and the vendor relies on a single cloud provider. Which conclusion best reflects the financial stability implications of this adoption pattern?

Heavy reliance on a few shared AI vendors and cloud providers concentrates operational risk, so one outage, flaw or cyberattack can hit many institutions at once. This correlated exposure is a systemic vulnerability, and banks still need oversight, contingency and exit plans for such third-party arrangements.

  1. AConcentration in a few third-party model and cloud providers creates operational dependency and correlated failures across institutionsCorrect
  2. BUsing a common vendor reduces systemic risk because all banks detect fraud identically
  3. CThird-party concentration is a risk only for the vendor, not for the banks
  4. DCloud reliance removes the need for exit and contingency planning

Explanation

The FSB highlights third-party dependencies and service provider concentration as vulnerabilities: a vendor outage, flaw or cyber incident could hit many institutions simultaneously. Uniform behaviour increases correlation, and banks retain responsibility, so contingency and exit plans are needed.

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