The Hong Kong Monetary Authority is on track to go live with its Commercial Data Interchange, a project first announced last November at Hong Kong Fintech Week.
Speaking last week at the annual Sibos conference, Howard Lee, deputy CEO at HKMA, said, “We hope first stage will be in operation later this year.”
The CDI will provide data to allow banks to conduct alternative credit scoring, particularly for small- and medium-sized businesses.
Lee said the HKMA was working on digital infrastructure for data, not just for payments. CDI is just one aspect of this agenda: HKMA is also building a digital identity system for Hong Kong.
“If you’re a corporate or a person, you have a lot of digital footprints scattered among various platforms,” he said. A Big Tech company can track down all of this data and monetize it in the form of advertizing or credit assessment. “But the individual doesn’t benefit much,” he said.
HKMA’s interchange will allow banks to consume data from data providers and other platforms, so long as the sources of the data – people or businesses – consent to its being shared.
“We operate on a consent basis, to obtain a fuller profile of the corporation itself,” Lee said, calling this scheme “a liberalization of one’s digital footprint.”
He added that it’s important for a small but open economy like Hong Kong’s that there be no dominant monopoly or oligopoly that holds all personal and corporate information. He criticized the idea of a private company becoming the “one-stop shop” for financial institutions.
The HKMA wants to keep this role to itself. Lee uses the language of a public utility: “It’s costly for different financial institutions to tap into various platforms…we provide a hub and spoke.”
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He added that HKMA does not see any of the data, which remains encrypted. “We provide the consent management system, so that everyone can access this more easily.”
Lee says the same principle applies to digital identity, which he says a government or central bank is in the best position to build. The infrastructure will help banks pursue more data-driven operations.
The HKMA sees its role as necessary to ensure commercial banks have the tools to meet big challenges like sustainable financing.
“This is not traditional prudential supervision, but capacity enhancement,” he said. “Digitalization is going to be a huge challenge both to banks and their supervisors.” Banks looking to deploy tools like artificial intelligence and automated services will need both technical support and funding.
Authorities also need to improve their capabilities in order to keep better track of banks.
“A bank moving from internal systems to cloud sounds innocuous,” Lee noted at Sibos.
But he worries that systematically important banks putting all their sensitive data in the cloud, using the same handful of datas, could be creating a new systemic risk:
“We don’t want to put on the brakes – we want to manage the risks – but these are the new risks,” he said.