HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong. The report is based on an industry-wide survey conducted by the HKMA Market Research Division, which aims to assess the current status of fintech adoption in the banking industry in Hong Kong and understand views of banks on the prospect of fintech development in the next ten years. The survey results indicate that fintech is viewed as a complement and enabling technology by the Hong Kong banking industry.
The report highlights that fintech innovations have been applied widely across all financial services by incumbent banks. The incumbent banks have made tangible efforts to apply financial technologies and intend to apply them to a greater extent in the future. Overall, the incumbents view fintech more as an opportunity than a threat to their business operations, now and in the next five years. Notably, a higher percentage of the incumbent banks see fintech as presenting opportunities across all financial services in the next five years. Although it may appear premature to evaluate the effectiveness of fintech adoption, there are already some early signs of payoff, with more than a third of the incumbent banks stating that their prime objectives of adopting fintech have been met.
With respect to the challenges facing banks, about three quarters to over 80% of the incumbent banks rate “difficulties in ensuring information security, data privacy, and protection,” “difficulties in retaining and attracting the right talents,” and “regulation related to Fintech evolution,” as either important or very important challenges to their fintech development, while about two-third of the incumbent banks rate “difference in regulatory standards across different jurisdictions” and “legacy IT systems” similarly. Among the incumbent banks, a larger share of the respondents from the foreign bank group considers “difference in regulatory standards across different jurisdictions” as important or very important than respondents from the retail bank group. These challenges are not specific to Hong Kong and can also be seen in the banking industries of other economies. To deal with some of these hurdles, policy makers could have a role to play.
The report mentions that preliminary research suggests that the adoption of fintech may have produced some positive effects on banks’ performance. Most banks take either a “proactive adopters” approach to achieve first mover’s advantage or a “reactive adopters” strategy where transformational changes are implemented at a steady pace. The pace and degree of fintech adoption will, however, hinge on whether the above-mentioned challenges can be overcome. HKMA has introduced several initiatives with the aim of addressing some related issues. It has also provided a number of guidance and recommendations to the banking industry related to fintech applications, in view of the evolving regulatory landscape. Virtual banks generally expect a bigger impact of fintech on traditional banking services and a more dramatic change in the structure of Hong Kong’s banking industry. If banks’ views are any guide, precautionary preparations for more dramatic changes in Hong Kong’s banking industry structure, such as strengthened monitoring on the fintech development as well as increased cooperation with different authorities responsible for oversight of regulatory functions related to fintech, may be warranted.
Keywords: Asia Pacific, Hong Kong, Banking, Fintech, Fintech Innovation, HKIMR, HKMA
Previous ArticleECB Issues Opinion on Revisions to CRR in Response to COVID Crisis
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.