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

A supervisory authority is designing its response to AI-related financial stability risks. Which combination best reflects the FSB's policy recommendations?

The best combination is to assess whether existing frameworks cover AI vulnerabilities, build supervisory capacity and expertise, and strengthen cross-border cooperation and data. It avoids a hasty new regime, pure self-governance, or pushing AI use into unregulated entities.

  1. ACreate a new AI-specific prudential regime immediately and discard existing frameworks
  2. BAssess whether existing policy frameworks are sufficient, enhance supervisory capacity and expertise, and improve cross-border cooperation and dataCorrect
  3. CLeave AI risks to institutions' internal governance with no supervisory action
  4. DRestrict AI use to non-regulated entities only

Explanation

The FSB suggests first assessing whether existing frameworks adequately cover AI vulnerabilities, building supervisory capacity and skills, and strengthening cross-border cooperation and information. It does not call for discarding existing frameworks right away, leaving risks solely to firms, or shifting AI use to unregulated entities, which would worsen risks.

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