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HKMA soothes banks – but it still wants their fintech plans

Arthur Yuen, deputy CEO, explains the data strategy behind asking banks to submit business strategies.



In July, the Hong Kong Monetary Authority contacted all licensed banks in its jurisdiction asking them to submit their mulit-year strategy for fintech, due by the end of the year.

On Wednesday, October 6, the HKMA’s deputy CEO, Arthur Yuen, explained what the authority intends to do with the data.

“We are asking banks to share their strategy for the next five years with regard to fintech development,” he said at the annual conference for the Private Wealth Management Association. The HKMA calls this its “technology baseline assessment”.

Yuen says the exercise is intended to enable the HKMA get a big-picture view of what banks are doing so it can suggest changes if it spots areas that are not being sufficiently addressed.

“We can set benchmarks, and analyze whether any tech and fintech use cases are not receiving enough attention,” he said. “Are there any technology solutions that banks are not focusing on?”

He wanted to assure banks that they will not be penalized for pursuing a given tech strategy. “This is not a supervisory glidepath,” he said. “It’s a strategic glidepath for individual banks to follow.”

But: “If we see weak spots or glaring omissions, we can sound a note of warning.”

The intent is for every significant bank to spell out its tech strategy so they have a roadmap to follow.

Strategic not supervisory

Yuen said because this is about big strategy, rather than I.T. or digital officer plans, the assessments must be driven from on high. Nor is it a compliance exercise.

“The momentum has to come from the board or from senior managers,” he said.

The HKMA is not interested in whether these solutions involve proprietary technology or third-party solutions, from fintechs or vendors. The authority says it is “tech-neutral”. What the HKMA wants is to see each major bank has a strategy – and a means of following through on it.

Yuen says banks that aren’t increasing their digitalization would eventually need to hasten a tech strategy anyway, or risk losing out to competitors. “If we’re not seeing an increase in an institution’s technology content, then something will be wrong. The thinking process is more important than the plan itself.”

The HKMA notified bank CEOS of its tech baseline assessment on June 18. The initiative is part of HKMA’s “Fintech 2025” strategy, to promote widespread fintech and regtech adoption, and to get banks to fully digitize operations. The authority is ready to throw its support behind either business areas or types of technology that lag in this process – but it needs to gather data to understand where to focus its attention.

Banks should update the HKMA on their current fintech adoption, and how they are incorporating it into front-to-back operations by 2025. The HKMA wants them to specify their fintech business areas, specific technology approaches, budgets, necessary hires and training, governance frameworks, and a view as to how these strategies will impact the bank’s overall competitiveness.

Other risks

The fintech mandate dovetails with some of HKMA’s other priorities, including grappling with technology risks and cybersecurity, particularly as more business is conducted remotely.

The authority is worried about managing the industry’s credit risks – because of Covid’s impact on some industries, Yuen said, while remaining silent on the current market worries about massive defaults spreading through mainland China’s real-estate sector.

The momentum has to come from the board or from senior managers

Arthur Yuen, HKMA

HKMA is also encouraging more ESG or green finance and the development of green products. Yuen was ambiguous on recent white papers sponsored by the Bank of International Settlements on developing a digital Hong Kong dollar, saying more research is required before HKMA will decide whether to issue one.

As for crypto and virtual assets, Yuen said any bank will need to be able to manage KYC, AML and other risks before they can get involved or facilitate exposures for clients.

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