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    HKMA Announces Regtech Knowledge Hub and Other Technology Updates

    April 29, 2022

    The Hong Kong Monetary Authority (HKMA) published a discussion paper on the key policy and design issues for introducing a retail central bank digital currency (rCBDC, also e-HKD) in Hong Kong. HKMA also launched the Regtech Knowledge Hub and issued guidance documents on Regtech Adoption and Temporary Protection Measures for Business Tenants Ordinance.

    The discussion paper examines the feasibility of a digital currency in Hong Kong and studies a wide-range of other issues, including use cases, potential benefits and challenges, and design considerations such as issuance mechanism, interoperability with other payment systems, privacy and data protection and legal considerations for the introduction of e-HKD. The paper highlights that the design of e-HKD requires careful consideration and its circulation must be fully backed by USD assets held in the Exchange Fund in accordance with the Currency Board principles under the Linked Exchange Rate System (LERS). The paper also emphasized the need to ensure that e-HKD upholds user privacy while ensuring the integrity of the e-HKD system, as full anonymity will be unrealistic due to anti-money laundering/counter-financing of terrorism (AML/ CFT) requirements. For this discussion paper, HKMA seeks comments from industry stakeholders by May 27, 2022.

    In addition, HKMA recently launched a Regtech Knowledge Hub to encourage greater sharing of regtech adoption experience and expertise within the regtech ecosystem in Hong Kong. The establishment of the Regtech Knowledge Hub forms part of the HKMA’s two-year Regtech promotion roadmap announced in November 2020. The Hub provides an online platform for the regtech community, including banks and regtech providers, to share success stories and implementation experience. The Hub also acts as a central repository of the HKMA’s Regtech-related information, including past circulars, guidance papers, and research reports. The launch of this Hub is accompanied by three innovative regtech use cases: artificial intelligence solutions for corporate loan credit risk assessment, alternative credit risk assessment solutions for small and medium-size enterprises, which are enabled by application programming interface and federated learning; and a digital ledger technology-based foreign exchange (FX) settlement solution that helps to reduce FX settlement risk. 

    HKMA also published the sixth issue of the Regtech Adoption Practice Guide, which focuses on artificial-intelligence-based-based regtech solutions. The practice guide aims to help banks plan adoption of such solutions and offers advice on how banks can establish data and artificial intelligence frameworks to address the challenges and barriers associated with the use of artificial intelligence.

    Another guidance document which HKMA issued for authorized institutions in intended to help these entities comply with the Temporary Protection Measures for Business Tenants Ordinance. The Ordinance aims to mitigate the impact of COVID-19 on business tenants of certain premises by providing for a protection period within which landlords are barred from taking certain actions in respect of their tenants’ failure to pay the rent. In addition to complying with the Ordinance, HKMA continues to expect authorized institutions to offer credit relief, on the basis of the Pre-approved Principal Payment Holiday Scheme (PPPHS), to landlords encountering cashflow problem where appropriate.

     

    Keywords: Asia Pacific, Hong Kong, Banking, Insurance, Securities, Basel, Fintech, Regtech, CBDC, e-HKD, AML CFT, Artificial Intelligence, ML TF Risk, Covid-19, Credit Risk, Principal Payment Holiday Scheme, Lending, Suptech, HKMA

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