FSS: "Banks Must Establish Internal Controls and Governance Systems as AI Adoption Expands"

Call for AI Risk Response
Emphasis on Preventing Financial Accidents and Protecting Vulnerable Groups

Financial regulators have emphasized the need for banks to establish internal controls and governance systems to address risks arising from the expanded adoption of artificial intelligence (AI) in the banking sector. Authorities also called for stronger internal controls and the establishment of an organizational culture aimed at preventing financial accidents and protecting vulnerable groups.

On June 29, the Financial Supervisory Service held the "2026 First Half Bank Internal Control Workshop" at its headquarters in Yeouido, Seoul. The workshop, which is held every six months to enhance internal control capabilities within the banking sector, was attended by over 170 internal control officers from eight banking groups and 20 banks.

Kwak Beomjun, Deputy Governor of the Financial Supervisory Service in charge of banks, stressed, "It is necessary to build internal control and governance systems that can proactively prevent and control unpredictable risks in line with the rapid advancement of AI technology." He continued, "We must establish internal control systems and an organizational culture in which all employees recognize and act on the importance of preventing financial accidents. Amid unstable domestic and international conditions, such as heightened geopolitical risks, please establish and operate internal control systems that protect vulnerable groups across all business areas, including consumer rights and the management of delinquent loans."

During the expert lecture, Kim Sunho, a partner at Deloitte Anjin LLC, explained the need to establish internal control systems to respond to changes in the work environment brought about by AI adoption. He presented an "AI Internal Control Framework" centered on five pillars: governance, linkage to work-related risks, data model management, operation and post-management, and explainability.

In particular, he suggested that the roles of bank holding companies and banks should be divided between standard-setting and on-site execution, and outlined key tasks for the first, second, and third lines of defense within financial companies. He also proposed that innovation is needed across institutions, systems, and processes.

Banks also shared case studies on the operation of AI-related internal controls. Shinhan Bank introduced its "Suspicious Signs Detection AI Agent," which applies the expertise and judgment criteria of inspectors regarding suspicious transactions to data for machine learning. KakaoBank presented its approach to establishing and operating a reliable AI governance system, including the implementation of a step-by-step AI governance project and the development of a management system for each stage of the AI lifecycle.

In addition, the Financial Supervisory Service shared the results of a special inspection of banking group governance conducted in January and discussed future improvement measures. Financial authorities are pursuing reforms focused on: ▲ strengthening the powers and responsibilities of boards of directors, ▲ tightening controls over the appointment and reappointment of chief executive officers (CEOs), and ▲ enhancing the rationality of performance-based pay operations. While most of the reform proposals have been finalized, the announcement has been repeatedly delayed.

The Financial Supervisory Service also requested that banks further strengthen internal controls related to the misuse of business loans for unauthorized purposes and matters concerning the Personal Debtor Protection Act.

A representative from the Financial Supervisory Service stated, "Through workshops and meetings on internal controls, we will continue to communicate with the banking sector and actively support the strengthening of banks' internal control capabilities."

This content was produced with the assistance of AI translation services.