Deployment of ‘next-generation’ financial data infrastructure and ‘future-proofing’ for central bank digital currencies (CBDCs) are among the goals of a newly announced strategy to drive fintech development in Hong Kong.
The Hong Kong Monetary Authority (HKMA) today (8 June) unveiled its fintech priorities, collectively entitled ‘Fintech 2025’, as it aims to encourage the financial sector as a whole to adopt technology ‘comprehensively’ over the next four years, as well as to promote the provision of ‘fair and efficient’ financial services.
The full digitalisation of all banks, improving the workforce’s fintech skills and ‘nurturing the fintech ecosystem’ via policies and funding are the three further parts of the strategy, which has five focus areas in total.
The city administration’s chief executive, Eddie Yue, presented the strategy at seminar organised by the Hong Kong Association of Banks (HKAB)
“Covid-19 has permanently changed customers’ behaviour. Their digital appetite will outlast the pandemic. The only way to satisfy their increasing digital appetite is to increase our fintech offerings, which in turn, will make them hungrier for more,” he said. “The HKMA believes now is the right time for the banking industry to double down on fintech development.’
Infrastructure initiatives include CDI
In respect of Hong Kong’s data plumbing, the HKMA’s plans include building new infrastructure, including a new Commercial Data Interchange (CDI). The CDI was announced last year as part of a flurry of fintech announcements timed to coincide with ‘Hong Kong FinTech Week 2020’.
“After joining CDI, you will be able to safely and quickly access corporates’ data, which, although always there, was previously almost inaccessible,” explained Yue in today’s speech. “What’s more, once CDI has been built, and related mechanisms established, your bank can connect with new data providers with minimal efforts. The need for customising connectivity for each partner will become a thing of the past.”
Other specified focus areas in respect of financial infrastructure include ‘digital corporate identity’, and a distributed ledger technology (DLT)-based credit data sharing platform, ‘to facilitate consent-based data sharing’.
On the hot topic of CBDCs, the authority says it will ‘strengthen its research work’ to increase Hong Kong’s readiness to issue retail and wholesale CBDCs. A retail CBDC is one issued for the public, while a wholesale CBDC is for financial institutions.
The HKMA has been working with the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre to research retail CBDC and will begin a study on an e-HKD (digital Hong Kong dollar) to understand its use cases, benefits and related risks. The explorations into possible technical and architectural designs are badged ‘Project Aurum’.
The HKMA will also continue to collaborate with the People’s Bank of China in supporting the technical testing of e-CNY (digital Chinese yuan) in Hong Kong ‘with a view to providing a convenient means of cross-boundary payments for both domestic and mainland residents’.
Review of banks’ digital adoption
In respect of digital banking, the HKMA plans to instigate a review – it refers to as a ‘Tech Baseline Assessment’ – of banks’ current and planned adoption of fintech, to identify fintech business areas or specific technology types that would benefit from HKMA support. During the final quarter of the year banks will be invited to submit their three-year plan for tech adoption.
The HKMA also plans to issue further supervisory guidance to facilitate the uptake of new technologies and digitalise its own supervision of banks.
On the topic of skills, the HKMA aims to ‘collaborate with various strategic partners to groom all-round fintech talent’, both students and practitioners. Among the initiatives will be a scheme, known as the Industry Project Masters Network, that will be piloted in September to provide internship opportunities to postgraduate students to work on banks’ fintech projects on federated learning (a machine learning technique) and other artificial intelligence technologies.
To help ‘nurture the fintech ecosystem’, a ‘Fintech Cross-Agency Co-ordination Group’ will be established by the HKMA and the private sector to formulate policies, among other initiatives.
‘Key growth engine in post-pandemic era’
Presentation of the strategy comes just over six months after the HKMA published a two-year roadmap to drive adoption of RegTech – the application of technology to improve regulatory compliance – in banks.
At the time the HKMA’s deputy chief executive, Arthur Yuen, said the development of fintech in Hong Kong had been “phenomenal” since the HKMA began promoting fintech adoption in 2017 and that the authority was “now putting the same emphasis on RegTech considering its pivotal role in revolutionising risk management and compliance”.
The authority will soon be publishing a ‘Regtech Adoption Practice Guides’ series to address how RegTech solutions can be applied to cloud computing, blockchain and anti-money laundering (AML) surveillance, Yue said today.
An increasing number of public authorities are ramping up their support for fintech, a trend accelerated by the Covid-19 pandemic. One example is the UK government-commissioned ‘Fintech Strategic Review’ (the ‘Kalifa Review’), whose conclusions were presented in February.
Yue today described fintech as “without doubt, a key growth engine for the financial industry in the post-pandemic era” in a press release issued today on the ‘Fintech 2025’ strategy.
Further details of the plan are due to announced ‘in due course’. Hong Kong Fintech Week 2021 is scheduled to take place from 1-5 November.