Artificial intelligence (AI) model regulation gap identified, credit loans 1trillion won increased
The Korea Institute of Finance said in a 6-day report that a regulatory gap exists because there are no model risk management guidelines despite the expanding use of artificial intelligence (AI). During the same period, credit loans increased by 1trillion won in just three days, and the total balance increased for the first time in 6 months.
The Korea Institute of Finance said in a report released on 6 that the use of artificial intelligence (AI) in the financial sector is rapidly expanding. The report said comprehensive model risk management guidelines covering both AI and non-AI models are needed. Yeon Tae-hoon, senior research fellow in charge of the study, explained that the current regulatory system does not cover models as a whole.
The report stated that attempts are being made to regulate AI in various ways, including enacting a general law and distributing financial authority-led guidelines specific to the financial sector. However, it pointed out that comprehensive guidelines applicable to existing models other than AI have not yet been introduced. It said this could create regulatory blind spots covering models as a whole.
The report explained that in some areas, it may become difficult to verify externally whether regulatory compliance has been achieved. In this regard, some in the financial sector are calling for the existing model risk management framework to be expanded to cover AI as well. Financial companies said they should review technology and operational risks together while overhauling their model management systems.
Meanwhile, the consumer credit market has recently seen a sharp increase in demand over a short period. Reports said that consumer credit increased by 1trillion won, and that the outstanding balance of consumer credit across the financial sector as a whole last month rose for the first time in 6months. This has been attributed to increased demand for borrowing to invest amid a high-interest-rate environment.
Financial authorities and some financial companies said they are monitoring the increase in consumer credit and the expansion of AI use simultaneously. The authorities believe that model management and consumer credit risks need to be reviewed together. The possibility has been raised that related regulatory improvements and stronger internal control systems may proceed in parallel.