Banking · Risk Management and Compliance
In the modern banking ecosystem, credit scoring models have evolved from simple linear regressions to complex machine learning algorithms. When a bank utilizes a hybrid credit scoring model that incorporates both traditional financial data and alternative data (such as utility bill payment history and social media footprints), which of the following risks is most significantly heightened regarding regulatory compliance and fair practices?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Interest rate risk due to the mismatch in the maturity profile of assets and liabilities.
- 2Model bias and lack of explainability leading to potential violations of fair lending practices.✓
- 3Market risk arising from fluctuations in the equity prices of the fintech companies providing the data.
- 4Operational risk associated with the physical security of the branch premises.
Correct answer
Model bias and lack of explainability leading to potential violations of fair lending practices.
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