Algorithms Regulatory Frameworks & Compliance 3 — Questions and Answers
Question 1: Which GDPR provision gives individuals the right to contest purely automated decisions that significantly affect them?
- Article 13 – Transparency
- Article 17 – Right to Erasure
- Article 22 – Automated Decision-Making (Correct answer)
- Article 25 – Data Protection by Design
Correct answer: Article 22 – Automated Decision-Making
GDPR Article 22 gives individuals the right not to be subject to solely automated decisions with significant effects, and to request human review.
Question 2: A healthcare algorithm recommends treatment plans without physician review. Which U.S. regulatory body would have primary oversight?
- FTC
- FDA (Correct answer)
- SEC
- CFPB
Correct answer: FDA
The FDA regulates software as a medical device (SaMD), including AI/ML algorithms that make clinical recommendations.
Question 3: What is 'differential privacy' and why is it relevant to algorithmic compliance?
- A method to speed up machine learning training
- A technique that adds statistical noise to protect individual data privacy (Correct answer)
- A legal standard for data breach notification
- A pricing model for cloud algorithm deployment
Correct answer: A technique that adds statistical noise to protect individual data privacy
Differential privacy adds calibrated noise to data or outputs so that individual records cannot be identified, helping comply with privacy regulations.
Question 4: Under the California Consumer Privacy Act (CCPA), what right do consumers have regarding automated profiling?
- The right to demand the algorithm's source code
- The right to opt out of the sale of personal information used in profiling (Correct answer)
- The right to a human decision in all cases
- The right to receive compensation for profiling
Correct answer: The right to opt out of the sale of personal information used in profiling
CCPA grants consumers the right to opt out of the sale of their personal information, which directly limits data available for profiling algorithms.
Question 5: Which concept requires that an algorithm's decision boundary cannot be changed after deployment to prevent retroactive bias?
- Algorithm versioning
- Model immutability (Correct answer)
- Concept drift monitoring
- Hyperparameter locking
Correct answer: Model immutability
Model immutability ensures that once deployed, a model's decision logic is frozen, preventing post-hoc manipulation that could introduce or hide bias.
Question 6: In the context of algorithmic trading, which U.S. regulation requires firms to have risk controls to prevent erroneous orders from algorithms?
- Regulation SHO
- Regulation SCI
- Market Access Rule (Rule 15c3-5) (Correct answer)
- Regulation NMS
Correct answer: Market Access Rule (Rule 15c3-5)
SEC Rule 15c3-5 (Market Access Rule) requires broker-dealers to implement pre-trade risk controls and supervisory procedures for algorithmic trading.
Question 7: What is 'red-teaming' in the context of algorithmic compliance?
- A method of distributing algorithm processing across multiple servers
- An adversarial testing approach to identify failures, biases, or misuse scenarios (Correct answer)
- A color-coded compliance rating system
- A backup strategy for algorithm rollback
Correct answer: An adversarial testing approach to identify failures, biases, or misuse scenarios
Red-teaming involves deliberately trying to break or misuse an algorithm to uncover vulnerabilities, biases, or harmful outputs before deployment.
Algorithms Regulatory Frameworks & Compliance 3
Which GDPR provision gives individuals the right to contest purely automated decisions that significantly affect them?