HKMA published the first issue of Regtech Watch newsletter, which provides information on actual or potential regtech use cases rolled out or being explored in Hong Kong or elsewhere. This inaugural issue outlines regtech use cases in the area of cyber defense. It is observed that the application of regtech for cyber risk management is gaining popularity across banks in Hong Kong. This issue of the newsletter summarizes three examples of such use cases involving behavioral biometric techniques, analytics of activity logs, and automation of cyber-security routine tasks.
Recognising the growing importance of Regtech, HKMA has launched a series of initiatives under the Banking Made Easy initiative to facilitate the adoption of regtech in Hong Kong. A workstream has been established to reach out to artificial intelligence firms, technology firms, and consulting firms to understand latest initiatives and ideas in the regtech space. Over twenty pilot trials of regtech use cases, including remote onboarding technologies, have been allowed under the Fintech Supervisory Sandbox of HKMA while about seventy discussion sessions have since been held through the Fintech Supervisory Chatroom. In the process, HKMA has picked up a broad range of local and overseas regtech use cases on prudential risk management and regulatory compliance. Out of these use cases, the newsletter showcases the following:
- Behavioral biometric techniques. In a regtech use case, behavioral biometric techniques were adopted to step up user authentication and fraud detection using multi-factor authentication. These techniques can also be used to combat automated credential stuffing attacks, as it could be more challenging for automated robots to simulate natural human behaviors.
- Analytics of activity logs. Some banks started to explore the use of advanced artificial intelligence algorithms to continuously comprehend what normal system, network, and user activities should look like and then use it as a basis to detect potentially abnormal patterns. This provides banks with enhanced anomaly detection capability even for unseen cyber-attacks. Such techniques may also reduce the extent of human workload required to operate these solutions.
- Automation of cyber-security routine tasks. Human errors can hardly be eliminated in cyber defense even with a robust governance framework, clear operational guidelines, and quality assurance efforts. In view of this, some banks are exploring the use of Robotic Process Automation, a technology that makes use of software robots to observe and learn from standard user behaviors such as how users interact with systems and how users respond to different business inputs or scenarios.
Apart from these three use cases, HKMA has noted some emerging regtech solutions that may also be relevant to the cyber defense of banks going forward. This includes solutions designed to deter credential stuffing attack. These solutions aim to tactfully reply to the attackers with fake web pages, with the aim to deceive the attackers into believing that the stolen credentials are valid, thus reducing the value of these stolen credentials in the dark market.
Keywords: Asia Pacific, Hong Kong, Banking, Regtech, Cyber Risk, Artificial Intelligence, Regulatory Sandbox, Regtech Watch, Fintech, HKMA
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