FRM Part II · FRM Exam Part II · The Financial Stability Implications of Artificial Intelligence
Under sound governance of AI models in a financial institution, which arrangement best reflects the principle of effective challenge?
Effective challenge means independent, competent validators who have the authority to question models and require changes, with escalation to senior management. Developer or vendor validation lacks independence, so it cannot provide the objective scrutiny that governance requires.
- AThe model developers validate their own models to ensure speed
- BIndependent validators with sufficient expertise and authority can question and require changes to models, with escalation to senior managementCorrect
- CValidation is outsourced entirely to the model vendor
- DOnly models rated high risk by the developer are reviewed
Explanation
Effective challenge needs independence, competence and authority to compel remediation. Self-validation or vendor validation lacks independence, and developer-determined scope allows conflicts of interest.
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