Home Policy & Governance Hong Kong Monetary Authority publishes ‘fintech promotion roadmap’

Hong Kong Monetary Authority publishes ‘fintech promotion roadmap’

Hong Kong Monetary Authority representatives present the roadmap: (from L-R) executive director (banking supervision) Raymond Chan; deputy chief executive Arthur Yuen; and head of supervisory technology Alvin Li | Credit: HKMA

The Hong Kong Monetary Authority (HKMA) has published a ‘fintech promotion roadmap’ setting out initiatives over the next year to encourage greater adoption of financial technology across the financial services industry.

‘A Bridge To The Future: Hong Kong Fintech Promotion Roadmap’, which is released today (25 August), focuses on artificial intelligence (AI) and distributed-ledger technology (DLT), and – in respect of ‘vertical’ financial services areas – ‘wealthtech’, ‘insurtech’ and ‘greentech’.

The authority states that it plans to expand its scope of promotion ‘beyond awareness-raising and take proactive steps to assist financial institutions to put fintech solutions into action’. It acknowledges that it is ‘important that the HKMA engenders more concerted collaboration across the financial services industry’ in order to ‘further fuel the growth of the fintech ecosystem’.

Planned activities include the establishment of a ‘Fintech Knowledge Hub’ including a cross-sectoral directory of fintech service providers and financial institutions; hosting ‘more regular’ fintech showcase events and roundtables ‘to establish more in-depth communication among financial institutions and fintech service providers’; and publishing use-case videos and research reports to ‘provide insights into a wider range of practical considerations across the entire fintech adoption lifecycle.’

HKMA deputy chief executive Arthur Yuen said the roadmap – which comes just over a couple of years after the HKMA unveiled its ‘Fintech 2025’ vision, which aims to encourage the financial sector to adopt technology ‘comprehensively’ under an initiative badged ‘All banks go fintech’ – “marks a significant step not only for the banking sector but for the financial services industry as a whole” and “demonstrates the financial regulators’ dedication to innovate as we accelerate our drive to become a leading fintech hub.”

RELATED ARTICLE Hong Kong launches ‘Fintech 2025’ vision – our news story (8 June 2021) on the ‘Fintech 2025’ strategy

AI and DLT’s growth potential

HKMA activity to encourage the fintech sector over the past couple of years has included undertaking what was referred to as a ‘Tech Baseline Assessment’ of banks’ current and planned adoption of fintech. The results were published in a 17-page ‘Tech Baseline Assessment Key Observations and Way Forward’ report in June 2022. This research identified regtech (the application of technology to improve regulatory compliance) as the most commonly adopted fintech business area.

It was this same research that highlighted the ‘substantial potential’ for growth in the newly published roadmap’s focus areas. The HKMA has found a ‘current adoption rate’ of about 60 per cent for AI and around 30 per cent for DLT. Estimated growth in the next three years was found as 47 per cent and 125 per cent, respectively.

‘The adoption of these technologies, however, is not without challenges,’ the 54-page roadmap states. It specifies hurdles as including: a lack of ‘comprehensive understanding’ of the technology; regulatory uncertainties; implementation considerations, ‘specifically concerning secure architecture, data privacy and data-sharing’; and the absence of compelling business cases that can substantiate the required investments.

The Fintech Knowledge Hub will be created from the HKMA’s existing Regtech Knowledge Hub.

The HKMA worked with the Securities and Futures Commission and Insurance Authority ‘as well as key stakeholders across different financial sectors’ during the formulation of the roadmap. Two consultancies, Quinlan & Associates and KPMG, were also involved.

RELATED ARTICLE Hong Kong unveils two-year regtech roadmap – our news story (3 November 2020) on the HKMA ramping up its support for ‘regtech’

CBDC tests ‘in full swing’

The HMKA is in the throes of preparing for Hong Kong Fintech Week 2023, which will take place from 30 October to 5 November.

The authority is also in the midst of a ‘pilot programme’ for the potential launch of a central bank digital currency (CBDC): an e-HKD (e-Hong Kong dollar). Hong Kong has yet to commit to launching a CBDC despite China, of which Hong Kong is a part, driving forward with its e-CNY (‘digital yuan’).

The HKMA used a LinkedIn post one month ago to describe the e-HKD pilot programme as being ‘in full swing’.

In May the HKMA announced a line-up of 16 firms from the financial, payment and technology sectors that it had engaged to participate in the pilot programme’s first round. The pilots are investigating potential CBDC use cases in six categories: ‘full-fledged’ payments, programmable payments (including government grant disbursement), offline payments, tokenised deposits, settlement of ‘web3’ transactions and settlement of tokenised assets.

In an example of specific activity, Standard Chartered Bank and Giesecke+Devrient are ‘seamlessly piloting offline payment transactions using the e-HKD app and smart card’; and ICBC (Asia) is testing an ‘enhanced e-HKD physical card, complementing the continued usage of physical currency in retail transactions’.