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ACCA Strategic Professional · Strategic Business Leader · Enabling success: disruptive technologies

Brightwell Bank trains a model on five years of past loan applications, each labelled as repaid or defaulted, so that it can predict the likelihood of default on new applicants. Which type of machine learning is being used, and what is a key governance concern?

This is supervised learning because the model learns from historical applications labelled with known outcomes. The main governance concern is that biases embedded in past lending decisions may be learned and reproduced, leading to unfair or discriminatory decisions that damage the bank's reputation and breach regulation.

  1. AUnsupervised learning; the concern is that the model will find no patterns without labels
  2. BReinforcement learning; the concern is that the model needs a live environment to earn rewards
  3. CSupervised learning; the concern is that historical bias in past lending decisions may be reproduced in the modelCorrect
  4. DRule-based automation; the concern is that the rules cannot be written down

Explanation

Training on labelled outcomes to predict a known target is supervised learning. Because the labels reflect past human decisions and outcomes, any historical bias can be learned and perpetuated, creating fairness and regulatory risk. Unsupervised learning uses unlabelled data, and reinforcement learning uses reward feedback.

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