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Answer: The bank has been expanding the use of artificial intelligence techniques to most of its data analysis processes.
## Explanation **C is correct.** The exponential increase in the application of AI techniques on large data sets has made compliance with BCBS 239 (the principles for risk data aggregation) more challenging. Therefore, the bank's increasing use of artificial intelligence techniques will be a challenge to its implementation of the principles. **Why other options are incorrect:** - **A is incorrect:** The ability to aggregate data at a firm-wide level rather than on a local team or business unit level is one of the goals of implementing strong risk data aggregation practices. - **B is incorrect:** Risk reporting frequency is a function of the risk type and purpose of each risk report. During times of stress, report frequency may increase to keep pace with unusually fast-moving markets. - **D is incorrect:** All risk types, including the Pillar 1 and Pillar 2 risks, should be included in the risk reports. ## Key Points - BCBS 239 principles emphasize the importance of comprehensive risk data aggregation and reporting - AI implementation can create challenges due to: - Complexity in validating AI models - Potential lack of transparency in AI decision-making - Difficulty in ensuring data quality and consistency across AI systems - Regulatory scrutiny of AI applications in risk management
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A senior risk manager at a US-based bank is working with the chief technology officer (CTO) on implementing a strong set of risk data aggregation and reporting practices at the bank that better complies with the Basel principles. The CTO asks the manager's opinion regarding potential challenges to this implementation given the bank's current practices. Which of the following observations about the bank's current practices is most likely to pose a challenge for the bank in complying with the Basel principles for risk data aggregation and reporting?
A
The bank has been aggregating its data on its risk exposures at the bank-wide level.
B
The bank has been adjusting the frequency of its risk reports to keep pace with changes in financial market volatility.
C
The bank has been expanding the use of artificial intelligence techniques to most of its data analysis processes.
D
The bank has been including all risk types, including the Basel Pillar 1 and Pillar 2 risk types, in its risk reports.
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