GARP Risk and AI (RAI) Practice Exam

When AI systems cannot be explained, the primary concern is the risk to the organization itself—its reputation and its regulatory standing. Opacity in AI decisions can erode trust among customers, partners, and the public, leading to reputational harm and potential loss of business. At the same time, regulators and auditors increasingly require transparency, accountability, and auditability for AI systems; lack of explainability can trigger investigations, penalties, or stricter governance requirements. These organizational consequences—how the entity is perceived and how it must be governed and regulated—are captured by Organization Risk. The other options describe societal or individual impacts, which, while important, do not directly address the internal governance and regulatory exposure faced by the organization when explainability is lacking.