FSS urges banks to build controllable AI risk frameworks

The Financial Supervisory Service sat down with the banking sector Sunday to work out an internal control framework suited to the age of artificial intelligence.

The FSS held its "2026 First-Half Banking Sector Internal Control Workshop" Sunday afternoon at the main auditorium of its headquarters in Yeouido, Seoul. The event, held every six months to strengthen internal control capabilities across the banking industry, drew more than 170 internal control officers and staff from eight banking groups and 20 banks.

In his opening remarks, FSS Deputy Governor Kwak Beom-jun, who oversees banking, called on participants to address three priorities: building governance structures capable of proactively managing the unpredictable risks of AI technology, embedding an organizational culture focused on preventing financial incidents, and strengthening protections for vulnerable groups.

Kim Seon-ho, a partner at Deloitte Anjin, presented an "AI internal control framework" built around five pillars: governance, business risk linkage, data and model management, operations, post-management and explainability. He recommended that holding companies and their banks divide responsibilities between standard-setting and on-the-ground execution, and that first-, second- and third-line departments clarify their respective roles and key tasks to drive comprehensive reform across systems, processes and regulatory regimes.

Shinhan Bank and Kakao Bank shared their own experiences applying AI to internal control operations. Shinhan Bank presented its implementation of an "anomaly-detection AI agent" that digitizes and learns from examiners' expertise in reviewing suspicious transactions. Kakao Bank introduced how it built a lifecycle management system for AI through its phased AI governance initiative, the "N.0 Project."

The FSS also shared the results of a special governance inspection it conducted in January covering eight banking groups. The inspection was carried out amid a broader push by financial authorities to improve corporate governance — a drive that gained momentum after President Lee Jae-myung sharply criticized the financial sector's insular personnel practices during a Financial Services Commission briefing.

The inspection found that while banks had made cosmetic improvements following the "governance best practices" guidelines established in 2023, many cases emerged in which those guidelines had been applied in a formalistic or evasive manner — including to entrench incumbent management. The FSS said oversight functions were inadequate in several respects: independent verification of outside director candidates was often insufficient, and boards with pro-CEO leanings participated in CEO succession procedures.

Financial authorities are discussing measures through a "Corporate Governance Advancement Task Force," including strengthening the authority and accountability of boards, tightening controls over CEO appointments and renewals, and improving the rationality of performance-based compensation.

The FSS's Bank Examination Bureau II shared the current status of inspections and sanctions related to the misuse of business loans for purposes other than those stated. Officials said they are examining not only individual cases of fund diversion but also deficiencies in banks' related internal controls, and urged all banks to address key shortcomings — including the omission of post-disbursement checks and failure to conduct on-site inspections.

A recent FSS inspection of six banks under the Personal Debtor Protection Act found numerous violations of debtor rights across the entire process from delinquency management to debt restructuring, including improper applications for housing auctions, breaches of limits on collection contact frequency, and failures to notify borrowers of impending loss of the benefit of time. The FSS said it will direct banks to immediately correct operational and system deficiencies and will strictly impose sanctions for any statutory violations.

"We plan to continue communicating actively with the banking sector through internal control workshops and consultative meetings, and to provide strong support for building internal control capabilities," the FSS said.