HKMA Report on Artificial Intelligence Application in Banking
HKMA published a report that examines the ways in which artificial intelligence is contributing to the reshaping of banking sector. This report is part of a series of publications on the study of the opportunities and challenges of applying artificial intelligence in the banking industry. The report presents findings of a study on the application of artificial intelligence in the banking sector in Hong Kong. HKMA had commissioned PwC to conduct this study in 2019. The report concludes that the basic building blocks, components, and techniques enabling artificial intelligence to support banking and other industries are now in place. However, the ongoing technical difficulties of harnessing artificial intelligence are now combined with other challenges, with the concept of "explainability" being one of the critical issues for financial institutions.
The report first introduces concepts necessary to understand artificial intelligence from both business and technical perspectives. It looks at the most important components and techniques in current artificial intelligence development. Then, it analyzes key technologies enabling the adoption of the current wave of artificial intelligence and looks at the drivers for adoption of artificial intelligence in the banking industry, along with benefits and potential barriers to adoption. Next, the report provides an overview of artificial intelligence in the banking industry in Hong Kong, wherein it also also shares popular artificial intelligence solutions being implemented by banks globally and defines where Hong Kong is on the spectrum of artificial intelligence development. Finally, the report considers how to implement artificial intelligence and looks to the future and recommends ways in which different stakeholders can help develop Hong Kong into an Innovation hub for artificial intelligence.
The findings show that almost 90% of the surveyed retail banks have adopted or plan to adopt artificial intelligence applications. Although the basic building blocks, components, and techniques enabling artificial intelligence to support banking and other industries are in place, the ongoing technical difficulties of harnessing artificial intelligence are now combined with other challenges. These include user acceptability, finding and retaining expert talent, integrating newly enabled products and services into a well-established business strategy, and the "explainability" of models. The following are the key recommendations presented in the report:
- Drafting guidelines on artificial intelligence risk management in consultation with working groups of banks and regulators would help to better manage regulatory compliance. With greater guidance, banks will become more confident and readier to apply artificial intelligence solutions.
- Knowledge-sharing of tried and tested use cases across Hong Kong’s banking artificial intelligence community is essential. This should encompass success stories as well as stories of those that fell short, either technically or due to a lack of real demand. In this way, financial institutions in Hong Kong will be able to develop an industry-wide understanding of the rules of the road for this new technology.
This report is based on the findings of a survey conducted in August and September 2019 on 168 HKMA-registered banks. The report also presents the findings of research into academic and commercial publications on artificial intelligence covering economics, public policy, regulation, technology and public use cases, and interviews with a start-up, two fintech incubators, a research organization, and ten banks.
Keywords: Asia Pacific, Hong Kong, Banking, Artificial Intelligence, Fintech, Regtech, Cyber Risk, HKMA
Previous Article
JFSA Project Uses Artificial Intelligence to Examine Annual ReportsRelated Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
FASB Proposes Improvements to 2023 GAAP Reporting Taxonomy
The Financial Accounting Standards Board (FASB) is seeking comments, until November 03, 2022, on the proposed technical and other conforming improvements for the 2023 GAAP Financial Reporting Taxonomy.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
