HKMA Looks at CBDC Cyber Risk and Operational Resilience Issues

The Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm of the Hong Kong Academy of Finance, published this report that assesses the operational resilience of the financial services industry in Hong Kong. With the views of local financial institutions gathered through a survey and interviews, commissioned by the HKIMR in July 2021, the report discusses the measures implemented across sectors of the financial services industry to mitigate the impact of the pandemic. For example, 85% of the survey respondents stated that they had incorporated pandemic scenarios in their business continuity plans before the pandemic. In addition, hybrid work models have also been adopted by financial institutions. The report also investigates the critical role of external enhancers, including policy support, financial and data infrastructure, and the accelerated adoption of financial innovations, in enhancing financial institutions’ operational resilience. The report is concluded by providing some preliminary considerations on how financial institutions can maintain and enhance the operational resilience should similar disruptive events occur in the future.

The report notes that the financial services industry has exhibited a high level of operational resilience during the first two years of the COVID-19 pandemic. A key factor contributing to this operational resilience has been the effective implementation of business continuity principles by financial institutions. The survey responses indicate increasing momentum for digitalization of financial services, with 55% expecting digitalization of the credit assessment processes. Also, most financial institutions support industrywide data-sharing initiatives, including the establishment of new industrywide data infrastructure and the promotion of Open Application Programming Interface. Supervisory guidelines, public-private partnerships, and knowledge-sharing are factors for establishing industrywide data infrastructure for financial institutions to further digitalize financial services. The report also notes that financial institutions indicated that, in the near future, cyberattacks, data breaches, business continuity planning, and hybrid work models are the areas that could benefit from regulatory guidance. The experience from the last two years has highlighted that preparing for disruptions, adoption of work models in accordance with business needs, digitalization of financial services with appropriate risk management, and collaboration with peers for mutual benefit are crucial to remaining operationally resilient during disruptive events.

Keywords: Asia Pacific, Hong Kong, Banking, Securities, Operational Resilience, Covid-19, CBDC, Central Bank Digital Currencies, Business Continuity, Open API, Cyber Risk, BIS Innovation Hub, Open Banking, Regtech, Basel, Operational Risk, HKMA, Bank of Israel