May 30, 2018

HKMA published a revised guideline on the authorization of virtual banks, following the completion of a public consultation. HKMA also published a document on consultation conclusions, which contains detailed summary of comments recieved, along the responses of HKMA. The guideline is issued under section 16(10) of the Banking Ordinance and it sets out the principles that HKMA will consider in deciding whether to authorize virtual banks applying to conduct banking business in Hong Kong.

Since HKMA announced its intention to encourage virtual banking in Hong Kong last September, it has received inquiries and indications of interests from over 50 companies. For the companies that have not been able to submit a substantially complete application to HKMA by August 31, 2018, they are most unlikely to be included in the first batch of virtual bank applications to be processed by HKMA. In processing these applications, HKMA will prioritize the applicants that can demonstrate the following:

  • They have sufficient financial, technology, and other relevant resources to operate a virtual bank.
  • They have a credible and viable business plan that would provide new customer experience and promote financial inclusion and fintech development.
  • They have developed, or can develop, an appropriate IT platform to support their business plan.
  • They are ready to commence operation soon after a licence is granted.

During the public consultation, HKMA received submissions from 25 respondents, including the Hong Kong Association of Banks, the DTC Association, the Consumer Council, chambers of commerce, an industry association from the fintech community, technology companies, and professional firms. All respondents supported the introduction of virtual banking in Hong Kong. Most of them agreed that virtual banks should be subject to the same supervisory requirements applicable to conventional banks. No respondents raised objection to allowing both financial and non-financial firms to operate a virtual bank in Hong Kong and there was broad support for virtual banks to operate in the form of a locally incorporated entity with no physical branches. A number of respondents requested HKMA to elaborate on some of the principles contained in the guideline. HKMA has taken on board many of these comments and has made suitable changes to the relevant paragraphs in the guideline. 

Keywords: Asia Pacific, Hong Kong, Banking, Guideline, Virtual Banks, Fintech, HKMA

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