A model risk team is evaluating whether a new AI system constitutes a 'model' under SR 11-7 or a 'business tool.' The system applies rules-based logic developed by domain experts to route customer inquiries. What conclusion is MOST defensible?
Select an answer to reveal the explanation.
Short Explanation
Here's the deal — SR 11-7 separates models from tools by what they do, not just that code runs. If the system just applies fixed expert rules to route inquiries, it may be a tool, but you still govern it based on materiality and risk.
Full Explanation
SR 11-7 distinguishes models, which apply quantitative estimation to transform inputs into risk-influencing outputs, from tools, which apply fixed expert rules or lookup tables. Purely rules-based routing may fall outside strict model scope, though risk-based judgment — not a rigid rule — should determine governance treatment given materiality. The claim that the system is a model because it uses computer code to process inputs is overbroad. The claim that the system is automatically a model because it influences customer interactions is overbroad. The claim that the system requires external regulatory approval before classification can be determined has no basis in SR 11-7.