The Hong Kong Monetary Authority (HKMA) has launched its Commercial Data Interchange (CDI) – a development that it hopes will ‘catalyse’ fintech-based innovation.
The CDI is a consent-based financial data infrastructure that has been developed to facilitate the process by which financial institutions, for example banks, retrieve enterprises’ commercial data, in particular the data of small- and medium-sized enterprises (SMEs) from both private and public data providers.
Plans for the CDI – one of the most important initiatives under the HKMA’s ‘Fintech 2025’ strategy – were announced almost two years ago and it began pilot operations in November 2021. During the pilot, it registered more than HK$1.6 billion (about £180m) in approved SME loans.
“With tremendous support from banks and data providers across various sectors, we are delighted to see CDI evolving from an idea to a pilot, and eventually a production-ready infrastructure throughout this two-year journey,” said HKMA deputy chief executive Howard Lee, describing this week’s official launch as a “milestone signifying a new era of data sharing”.
“We believe CDI will become a key enabler for multilateral data sharing among banks and data providers, catalysing financial innovations,” he added.
Government data by end-2023
Twenty-three banks with ‘material’ SME business and 10 data providers have joined the CDI at its launch. The HKMA highlights six ‘key’ data providers with ‘substantial’ SME data (listed at the end of this article) as providing consented access for banks ‘in the CDI production environment’. At this point, data will include e-trade declarations, e-commerce, supply chain, payment and credit reference data.
With the launch of the CDI, the HKMA is encouraging financial institutions to ‘embrace’ innovative applications to digitalise and streamline a broad range of financial processes, such as know-your-customer (KYC) procedures, credit assessment, loan approvals and risk management.
The HKMA plans to ‘continue to broaden’ the spectrum of data available via the CDI – including data from government departments, as well as analytics service providers, with a view to ‘exploring new business use cases’ capitalising on the CDI.
In respect of government data, it is expected that by the end of 2023, Hong Kong’s Consented Data Exchange Gateway (CDEG), developed by the Office of the Government Chief Information Officer (OGCIO), will connect to the CDI, with a view to facilitating consented data exchange between government departments and financial institutions. The HKMA has been working with departments including the Companies Registry on technical details for integration. Once the link-up is completed, participating banks will be able to search for companies’ information via the CDI to support KYC and risk management processes.
As well as government data, the HKMA will continue to explore new sources of commercial data, such as shipment data platforms, public utilities and telecoms companies. The authority is also considering a proof-of-concept project with analytics service providers to explore connecting their federated learning engine to the CDI, using a privacy-preserving technology to facilitate alternative credit scoring for SME financing. Federated learning is the decentralised form of machine learning.
To ensure that all CDI participants follow the same rules for ‘proper, fair and secure’ data exchange, the HKMA – which unveiled its ‘Fintech 2025’ vision last year – has also published a 12-page ‘CDI Framework’ detailing its governance model and structure. Plans for the CDI were announced as part of a flurry of announcements timed to coincide with ‘Hong Kong FinTech Week 2020’.
CBDC project update
Separately, a significant update has been presented on ‘Project Aurum’ – a central bank digital currency (CBDC)-focused initiative that the HKMA has been undertaking alongside the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre and the Hong Kong Applied Science and Technology Research Institute (ASTRI).
A 38-page report, ‘A Prototype for Two-Tier CBDC, has been published by the BIS that details how those involved developed a full-stack (front-end and back-end) CBDC system comprising a wholesale interbank system in which the wholesale CBDC is issued to banks for onward distribution to retail users; and a retail e-wallet system in which the retail CBDC circulates among retail users.
‘We are glad to report that after a year of development, the prototype system was successfully completed,’ the document states.
Project Aurum has made numerous ‘ground-breaking’ achievements, the report notes. These achievements including that the two-tier architecture ‘provides additional privacy for end-users as the interbank system does not record any personal data’; and that the decoupling of the wholesale and e-wallet systems ‘strengthens cyber-resilience based on the principle of privilege separation and network segmentation, by minimising the interactions between retail and wholesale activities’.
The system is accompanied by technical manuals totalling more than 250 pages that, together with the source code, have been made accessible to all BIS member central banks on BIS Open Tech – an ‘open’ platform for sharing nascent financial and statistical software as public goods launched earlier this year – ‘to help catalyse and inspire the global quest for the most suitable retail CBDC architecture’, BIS states.
COMMERCIAL DATA INTERCHANGE
Six ‘key’ data providers =>
· Dun & Bradstreet (Hong Kong)
· GS1 Hong Kong
· HKT Payment
· New World Development Company (participating through its wholly-owned subsidiary River Square Company)
· QFPay Haojin Fintech
· Tradelink Electronic Commerce
‘Hong Kong plans CBDC pilots in next moves towards potential e-HKD’ – our news story (22 September 2022) on the HKMA setting out its next moves in its explorations of a potential e-HKD (Hong Kong dollar)
‘Hong Kong and Israel examine CBDC cybersecurity resilience’ – our news story (20 June 2022) on the HKMA and Bank of Israel teaming up to research the cybersecurity aspects of CBDCs in a project being led by the BIS Innovation Hub’s Hong Kong centre
‘Hong Kong consults on retail central bank digital currency’ – our news story (27 April 2022) on the HKMA issuing a discussion paper inviting views on policy and design questions surrounding the potential introduction of a retail CBDC
‘Hong Kong launches “Fintech 2025” vision’ – our news story (8 June 2021) on the unveiling of the HKMA’s fintech strategy as it aims to encourage the financial sector to adopt technology ‘comprehensively’
‘Hong Kong unveils two-year regtech roadmap’ – our news story (3 November 2020) on the HKMA ramping up its support for ‘regtech’ (the application of technology to improve regulatory compliance)