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

An authority concludes that existing financial regulatory and supervisory frameworks may not fully cover AI-related vulnerabilities. Which policy recommendation from the FSB report best fits this conclusion?

The best fit is to assess whether current regulatory and supervisory frameworks are sufficient and strengthen them where gaps appear, including supervisory skills and cross-border cooperation. The FSB does not propose a uniform AI capital charge, a ban on machine learning, or handing oversight to technology providers.

  1. ACreate a new global AI-specific capital charge applied uniformly to all banks
  2. BAssess whether current frameworks are sufficient and enhance them where needed, including supervisory capabilities and cross-border cooperationCorrect
  3. CReplace model risk management guidance with a prohibition on machine learning models
  4. DDelegate all AI oversight to the technology firms providing the models

Explanation

The FSB recommends that authorities assess whether existing frameworks adequately address AI vulnerabilities and enhance them where gaps exist, building supervisory capacity and cooperation. It does not call for a uniform AI capital charge or bans, and delegation to providers would not be oversight.

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