Arthur Yuen of HKMA Examines Regtech and Suptech Initiatives for Banks

Mr. Yuen discussed numerous digital banking and fintech initiatives from various banks. Key among them include the projects on mobile payments; biometric authentication initiatives using different biometric attributes, such as fingerprint, finger-vein, voiceprint and facial features; software security tokens; chatbots powered by artificial intelligence; and enhanced financial services leveraging distributed ledger technologies and social media platform integration. Also, over 70 firms, including local and overseas technology and financial firms, have expressed interest in establishing virtual banks in Hong Kong and about 10 banks plan to launch online personal lending services that leverage machine learning technologies and data analytics. To help develop the regtech ecosystem, HKMA will open the Fintech Supervisory Sandbox to Regtech projects or ideas raised by banks or tech firms. HKMA will soon launch a series of regtech-specific projects, through its Banking Made Easy initiative, focusing on four areas: AML/CFT surveillance technologies; regtech for prudential risk management and compliance; study on machine-readable regulations; and its exploration of suptech.

HKMA plans to embark on a study to enhance the timely retrieval and transmission of anti-money laundering and countering the financing of terrorism (AML/CFT) related information and data from banks and Stored Value Facility operators in a digitalized and efficient way, as opposed to the old-fashioned way of regulatory returns and surveys. It will also explore data analytics tools for processing the data collected to generate useful analyses for furthering the capability to understand and assess the money laundering and terrorist financing risks at the sectoral level. These will hopefully lead to an evolution and reshaping of regulatory interface between HKMA and market practitioners to enhance AML/CFT surveillance capability of all. Additionally, HKMA will engage the banking industry and fintech community to identify possible ideas where regtech may be explored in prudential risk management and compliance in Hong Kong. HKMA would also provide supervisory guidance or clarifications to facilitate the applications of these technologies, as part of its Banking Made Easy initiative.

The third area that HKMA would explore is related to machine-readable regulations. Although the idea of machine-readable regulations is still at the conceptual stage, HKMA will conduct a deep-dive study on the needs for, and possibilities of, machine-readable regulations in respect of selected regulatory requirements. The study is expected to offer better insights on whether machine-readable regulations are desirable and feasible in Hong Kong and to encourage the industry to explore the use of new technology in enhancing the regulatory processes. The fourth area will involve the exploration of suptech or supervisory technology by HKMA. HKMA will use the new technology to support and enhance the effectiveness and forward-looking capability of supervisory processes and activities. It can also seek to further automate its interactions with banks, such as streamlining banks’ regulatory data collection mechanism, enhancing digitalization and analytics of supervisory information, and automation of supervisory processes.

As HKMA engages the tech community in its exploration of suptech, tech firms will also gain a better understanding of its regulatory requirements and supervisory processes. This in turn will help enhance the HKMA interface with the tech community, which will be beneficial for the further development of the regtech ecosystem in Hong Kong. All the above initiatives share a common objective, which is to identify challenges facing the industry throughout the regulatory compliance journey and build a more diversified regtech ecosystem. To sum up, HKMA believes that the “time is right for closer collaboration among the banking industry, technology community, and the HKMA to give a push to the adoption of regtech in Hong Kong.”

Keywords: Asia Pacific, Hong Kong, Banking Suptech, Regtech, Artificial Intelligence, Automation, AML/CFT, HKMA