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FRM Part II · FRM Exam Part II · Advances in Artificial Intelligence: Implications for Capital Markets Activities

Several large banks adopt similar AI tools from the same third-party provider for market surveillance and risk monitoring. From a financial stability perspective, which concern is most relevant?

The main concern is concentration: if many institutions depend on the same provider or similar models, errors, outages or biases can be correlated across the system, creating herding and single points of failure. Third-party use does not exempt firms from resilience or oversight duties.

  1. AConcentration in a common provider could create correlated errors and operational dependencies across institutionsCorrect
  2. BUsing similar tools always reduces systemic risk through standardization
  3. CThird-party tools are exempt from operational resilience expectations
  4. DIdentical models cannot be affected by data quality problems

Explanation

Reliance on a common provider or similar models can lead to herding, correlated failures and single points of failure. Standardization does not remove risk, and third-party use remains subject to resilience and oversight expectations.

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