A model risk manager is creating a materiality threshold for AI model risk classification. Which factor MOST justifies classifying an AI model as 'high materiality'?
Select an answer to reveal the explanation.
Short Explanation and Infographic
Here's the deal — b is correct because materiality in model risk is primarily driven by the consequence of model errors, not model complexity alone. A model that directly drives binding credit, pricing, or underwriting decisions affecting customers at scale has high materiality because errors propagate directly into consequential outcomes.
Full explanation below image
Full Explanation
B is correct because materiality in model risk is primarily driven by the consequence of model errors, not model complexity alone. A model that directly drives binding credit, pricing, or underwriting decisions affecting customers at scale has high materiality because errors propagate directly into consequential outcomes. Complexity (A) is a factor in validation difficulty but not in materiality. Vendor source (C) is a third-party risk factor. Lack of recent validation (D) is a governance control deficiency that may increase risk but is not what determines inherent materiality.