The Hong Kong Monetary Authority (HKMA) is ramping up its support for ‘regtech’ having published a two-year roadmap to drive adoption in banks.
Hong Kong’s de facto central bank said that regtech – the application of technology to improve regulatory compliance – was growing in importance and it plans to put the same focus on efforts to drive take-up as it has for the past three years on fintech.
The authority’s roadmap is set out in ‘Transforming Risk Management and Compliance: Harnessing the Power of Regtech’, a 69-page white paper. One-third of banks have fully implemented at least one regtech solution but there are ‘significant opportunities’ both to encourage banks that have yet to implement regtech, and also to encourage those that have adopted solutions to improve implementation and expand its use into new areas, the document says.
Budgetary and capability constraints, as well as the lack of availability and maturity of solutions, are identified as the main barriers to adoption for banks and regtech providers.
Fintech growth ‘phenomenal’: now it’s regtech’s turn
HKMA 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 is “now putting the same emphasis on regtech considering its pivotal role in revolutionising risk management and compliance”.
“The banking industry should seize the opportunity to capitalise on the benefits of regtech. The HKMA’s two-year roadmap will help to build a thriving ecosystem, transforming Hong Kong into a regtech hub,” Yuen added.
Recommendations in the white paper span five areas: boosting awareness by issuing practical guidance and organising targeted events; promoting innovation among the local and global regtech community and facilitating access to infrastructure; enhancing regulatory engagement with the regtech ecosystem through ongoing dialogue and collaboration; developing talent by formalising a regtech training and skills framework; and sustaining adoption via continued industry engagement and effective tracking of progress.
Specific proposed activity includes the establishment of a regtech knowledge hub to act as a central repository of all regtech-related content and knowledge-sharing; the launch of a ‘Regtech Adoption Index’; and the organisation of ‘Global Regtech Challenge’ to stimulate innovation.
Developments that have already taken place include the opening of the HKMA’s regulatory sandbox to regtech providers in 2018; provision of a ‘Regtech Watch’ newsletter; and organisation of events such as an anti-money laundering/combating the financing of terrorism conference – the AML/CFT RegTech Forum – in November 2019.
Updates on CBDC, data and trade finance plans
The HKMA unveiled its regtech ambitions as part of a flow of fintech announcements timed to coincide with ‘Hong Kong FinTech Week 2020’ (taking place in virtual format), which it is co-organising with InvestHK. The authority’s chief executive Eddie Yue described the announcements as “examples of the HKMA’s focus on applying technology to achieve better banking and drive financial inclusion”.
As well as its regtech roadmap, the authority also issued an update on ‘Project Inthanon-LionRock’, a study on central bank digital currencies (CBDC) and cross-border payments being conducted with the Bank of Thailand. The two authorities are aiming to explore business use cases in cross-border trade settlement and capital market transactions. At present, Hong Kong Exchanges and Clearing, 19 banks and five other corporates have agreed to participate. Project findings are expected to be delivered in the first quarter of next year.
Separately, the HKMA said it was exploring a new data strategy and considering building a new financial infrastructure, called Commercial Data Interchange (CDI), to enable more efficient financial intermediation in the banking system, and to boost financial inclusion. This would allow small- and medium-sized businesses to use the data to improve their access to financial services. The authority has this week published ‘Alternative Credit Scoring of Micro-, Small and Medium-Sized Enterprises’, an 145-page study by Hong Kong Applied Science and Technology Research Institute (ASTRI) on the use of artificial intelligence in SME loan applications.
Also, the HKMA made various further announcements as it looks to encourage the digitalisation of trade finance. These included naming the winners of a joint initiative with the Bank for International Settlements Innovation Hub to showcase technology’s potential to resolve problems in trade finance. The ‘TechChallenge’ competition, which launched in August, saw 17 winners and runners-up named from 103 submissions.