This June, citing the United Nations Development Programme’s Human Development Report 2025, the World Bank published a report documenting the growth in applications of artificial intelligence (AI) from routine tasks to complex, non-routine ones. The report highlighted five key observations. First, AI cannot replace human risk-taking and judgment in high-risk situations, but can only serve as a supplementary tool; second, generative AI is rapidly improving innovation and productivity; third, AI can lower the barriers to acquiring advanced expertise; fourth, AI has the potential to personalize and customize services at scale; and fifth, policymakers must understand its risks and potential, and identify the best application options for each situation.

This global trend is creating unprecedented opportunities for transformation in the financial industry. Adhering to the principle of responsible innovation, the Financial Supervisory Commission (FSC) is actively developing an AI governance framework to encourage financial institutions to develop trustworthy AI, aiming to collaboratively build a smarter, more secure, and more inclusive digital financial ecosystem.

According to the FSC’s A1 Application Survey this year, out of 383 financial institutions and related entities, 126 have already implemented AI (33%), an increase from 29% last year. Domestic banks have the highest AI adoption rate (87%), followed by life insurers (67%) and property and casualty insurers (45%). The primary areas of adoption are internal administration (27%), intelligent customer service (19%), and fraud prevention (14%). The primary goals are to improve operational efficiency (30%), reduce labor costs (18%), and improve the customer experience (15%).

It is worth noting that the automated decision-making is still in its early stages. 43% of financial institutions have yet to implement AI decision-making, while another 40% have an automation ratio of less than 25%. In order to ensure accuracy, fairness, and stability, financial institutions typically begin with pilots in relatively low-risk areas such as internal operations and employee services, before gradually expanding to customer service accordingly. More advanced applications include AI agents, such as automated order placement and transactions. Approximately 47% of respondents also indicated they plan to introduce AI or continue expanding its application scope. In addition to jointly developing A1 anti-fraud technology and establishing LLMs for the domestic financial sector, the industry is also focusing on the development of agents. The FSC welcomes these technological explorations and will continue to provide support and assistance.

Fintech development must balance innovation and risk management. The FSC has established a dual-track “innovation experiment” and “business trial” mechanism as a safe environment for fintech R&D and pilot projects, supplemented by FinTechSpace. The FSC also offers consultation and guidance related to regulation and innovation through consultation and guidance sessions, as well as an Innovation Park Supervision Clinic.

To accelerate collective innovation and application, the Taiwan Financial Services Roundtable established the Fintech Industry Alliance in February as a platform for cross-industry communication and collaboration, focusing on four key areas: fintech R&D, practical standards for digital finance, fintech investment exchange, and cross-industry ecosystems. These areas cover A1 fraud prevention, development of LLMs for the domestic financial industry, data training and analysis in financial clean rooms, a Fintech fund of funds, and cross-industry data sharing.

Faced with increasingly sophisticated types of fraud, prevention has become a crucial AI application. Last year, the FSC oversaw a joint independent demonstration project on fraud prevention at FinTechSpace, bringing together the financial, technology, and telecommunications sectors to leverage techniques such as federated learning, synthetic data, and privacy enhancement to jointly train and optimize models. Previously, individual institutions lacked comprehensive knowledge of fraud patterns or sufficient sample size. More accurate identification of anomalous accounts and fraudulent behavior has helped immediately intercept suspicious transactions, block illegal financial flows, and protect public property.

Furthermore, to enhance Taiwan’s ability to respond to and defend against new forms of fraud and address the potential for identity theft using deepfakes, overseen by the FSC, the Bankers Association collected solutions and practices from various countries in 2024 and published a research report on the financial industry’s response. The action plan proposes improved Know Your Customer (KYC) processes, stronger identity verification, AI-based detection, customer alerts, risk monitoring and fraud prevention models, employee education and training, and legal regulation.

As digital transformation and financial AI applications accelerate, cultivating and retaining fintech talent has become critical. To address this challenge, since 2021, the FSC has been promoting a Fintech Competency Certification Plan by TABF, the Securities and Futures Institute, and the Taiwan Insurance Institute to strengthen the fintech knowledge of financial professionals. In 2024, it completed revisions to the certification system and curriculum design to ensure alignment with the latest international market demands.

Looking ahead, the FSC will continue to optimize the regulatory environment, adjust market mechanisms, and promote a variety of policy tools to support financial institutions in developing innovative applications to achieve a fair and inclusive digital transformation. At the same time, it will actively deepen international connections and participate in global supervisory cooperation to ensure that regulation in Taiwan aligns with international development trends, working with the financial industry to jointly move toward a new era of smart finance.

The author is Director-General of Development and Innovation at the FSC