HKMA Sets Out ‘Four Actions’ to Realise Regtech 2025 Vision

At the HKMA’s flagship regtech conference, Eddie Yue outlined the initiatives underway to promote regtech adoption, including to explore a corporate version of iAM Smart.

HKMA (Hong Kong Monetary Authority) chief Eddie Yue set out four key actions to promote regtech in the banking sector on Wednesday (30 June), speaking at the regulator’s flagship Regtech conference “Unlocking the Power of Regtech”.

“Regtech constitutes an integral and important driver of the HKMA’s ‘Fintech 2025’ strategy,” Yue said, referring to a new fintech development strategy announced in early June. “We have developed a vision that by 2025, Hong Kong a leading hub for developing Regtech solutions and cultivating Regtech talents.”

Yue noted that many banking practitioners remain “quite unclear” about the concept of regtech, including what values it might bring and how it can be leveraged to bring about measurable benefits.

He highlighted four actions to transform bank attitudes and practices towards regtech, the first of which is for the HKMA itself to understand the evolution of Hong Kong’s regtech landscape and “what’s actually happening on the ground”.

In this vein, the HKMA has launched its inaugural Regtech Adoption Index (RAI), which shows that 56 percent surveyed banks are using regtech in at least two of the six regulatory themes identified in a November 2020 whitepaper.

Yet, banks currently have little engagement with the wider regtech ecosystem, with only 16 percent of them currently taking part in associations and industry groups and only 33 percent partnering with regtech firms. “This is an area that definitely needs more work,” Yue said.

The RAI identified budget constraints, integration challenges, and low ecosystem participation as other key barriers to regtech adoption. While banks plan to significantly increase the headcount allocated to regtech over the next 12 months, capital investments are likely to be gradual.

The second action is for the HKMA to raise awareness among banks of the benefits, applications and solutions associated with regtech. As part of this, the HKMA has been publishing a series of Regtech Watch newsletters since November 2019, and has recently launched a new Regtech Adoption Practice Guide series, providing practical implementation guidance.

In the year ahead, the HKMA also plans to roll out a centralised knowledge hub which will serve as a platform for sharing regtech information and content. This will allow banks to become more familiar with regtech and help them manage the adoption process, Yue said.

The third action the HKMA is taking is to encourage the development of new regtech solutions and innovation through incentives and competitions like the Global Regtech Challenge, which launched in March and saw participation from 86 global and local regtech firms.

The winners of the competition were announced during the conference: Wolters Kluwer (GRC and risk management); Fano Labs (conduct and customer protection); and LeapXpert (customer data privacy).

As for incentives, Yue pointed to the HKD 10 million Fintech Proof-of-Concept Subsidy Scheme, launched by the FSTB (Financial Services and the Treasury Bureau) in January. Under the scheme, a one-off grant of up to HKD 100,000 is provided to each approved PoC project.

Yue also highlighted the ongoing development of the CDI (Commercial Data Interchange), an initiative that will boost financing opportunities for SMEs by enabling them to use alternative data sources such as e-commerce transactions and utility payments when seeking credit.

The HKMA is also encouraging greater use of the government’s new digital identity platform, known as ‘iAM Smart‘, to enable remote onboarding and secure authentication. “The HKMA is now exploring a corporate version of iAM Smart, which will offer another important infrastructure to support Regtech development,” Yue said.

The fourth action that the HKMA is pursuing is to expand the regtech ecosystem by nurturing talent and enhancing interaction within the ecosystem.

The HKMA is working on a new regtech skills framework that banks can use to ensure their staff are properly equipped with regtech skillsets. This will be translated into an Enhanced Competency Framework module, to promote upskilling of banking practitioners.

To close out the conference, HKMA deputy chief Arthur Yuen highlighted four key takeaways for overcoming the challenges connected with regtech adoption:

  • buy-in from stakeholders from across financial institutions is crucial
  • good quality data is essential to using regtech effectively
  • robust risk management remains important for evaluating and managing risks associated with technology adoption
  • collaboration between solutions providers, professional services and financial firms can help to bridge gaps in technical capability, people and skills

“Looking ahead, we expect the demand for regtech solutions to continue to grow,” Yuen said. “But we will only achieve our Regtech 2025 vision if the regtech ecosystem works together towards the same goal.”

Yuen called on conference participants to become more involved in the regtech ecosystem. “Through continuous collaboration and knowledge-sharing, we can enlarge and enrich our regtech ecosystem and, in the longer run, turn Hong Kong into a global leading regtech hub.”

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