Current Issues in Financial Markets: FRM® Part II
It is 10% of the 2026 Part II exam. 31 learning outcomes across 8 learning modules.
Advances in Artificial Intelligence: Implications for Capital Markets Activities
- Lay out how AI and machine learning (ML) are used in capital markets today, and where more advanced models such as GenAI could be applied in future.
- Account for what wider AI adoption could mean for the way markets behave.
- Show why wider AI adoption matters for financial stability.
- Set out recommended regulatory practice on AI, covering supervisors' own use of AI and policy advice on how regulated firms should use it.
The Financial Stability Implications of Artificial Intelligence
- Account for the main AI advances made since 2017, separating those pushed by supply from those pulled by demand.
- Pinpoint and examine AI use cases now in place or emerging in financial services, from both industry and the regulatory and supervisory side.
- Weigh up how AI could affect financial stability, concentrating on third-party reliance and provider concentration, market correlations, cyber risk, model risk with data and governance, and others like fraud, disinformation and misalignment.
The Global Drivers of Private Credit
- Characterise how private credit funds are built and what defines them, along with how the asset class has expanded worldwide.
- Review what may be behind private credit growth and read regression results on how strongly each factor matters.
- Judge how private credit lending stacks up against bank lending, and how movements in equity costs, debt costs and leverage have reshaped rivalry between them.
Global Financial Stability Report, Chapter 2
- Pinpoint the main routes by which geopolitical risk moves asset prices and affects financial stability, and review policy responses to its possible fallout.
- Examine why geopolitical risk events worldwide leave different marks on individual countries, industries and asset classes, notably separating net commodity importers from exporters.
- Judge how stock markets reacted to various domestic and global geopolitical risk events, such as Russia's invasion of Ukraine and U.S.-China trade tensions, and account for their spillovers across borders.
- Judge the way geopolitical shocks feed into the premiums demanded for holding sovereign risk.
- Show how equity and option markets price in geopolitical risk, including shifts in downside risk and tail-risk premiums.
- Outline how being exposed to geopolitical risk shapes how well banks and non-bank financial firms hold up, through share valuations, credit supply and flows into investment funds.
Monetary and fiscal policy: safeguarding stability and trust
- Set the transmission channels of fiscal policy against those of monetary policy for output and asset markets, and specify what the region of stability is in terms of both stances taken together.
- Lay out what follows when policy moves beyond the region of stability, and how those outcomes have changed over time for advanced and emerging market economies.
- Set out the dangers to global economies from high public debt, including how such debt together with other factors can set fiscal and monetary policy against each other.
Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
- Define crypto assets and characterise them, including the classes that financial regulators around the world commonly use to sort them.
- Judge the main parts of the crypto ecosystem, the risks each part can create, and the regulatory measures that could address those risks.
- Pinpoint and outline several worldwide approaches to regulating unbacked crypto assets, including the BCBS proposal on how banks should treat their crypto exposures.
- Scrutinise the Bali Fintech Agenda (BFA) and the considerations and steps it proposes for designing regulation of crypto assets.
Tokenization and Financial Market Inefficiencies
- Account for how tokenization works and characterise the core properties of tokenized assets and digital ledgers.
- Lay out the frictions and inefficiencies arising at various stages of an asset's lifecycle, and show how tokenization features can both heighten and reduce the associated risks.
- Show why tokenization and digital ledgers can shift market externalities, meaning the spread of shocks across the system, how much gets invested in market infrastructure, and the effects of networks and shared knowledge.
- Explain the consequences that widespread distributed ledger technologies could have for individual investors and for brokers.
- Contrast the available models and methods for giving a ledger sharedness, programmability and trust, and set out when trust can break down in each.
Digital Resilience and Financial Stability: The Quest for Policy Tools in the Financial Sector
- Outline the nature of the cyber risks and the ICT (information and communication technology) risks to which financial institutions are exposed.
- Judge how cyber and ICT risks interact with financial risks, and show how cyber and ICT incidents at financial institutions can grow into systemic financial risk.
- Outline the macroprudential tools and policy measures that could tackle cyber and ICT risks, and account for the obstacles to adopting each.
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