Hong Kong Monetary Authority highlights BCBS fintech implications paper

The HKMA has drawn attention to a Basel Committee on Banking Supervision report which sets out sound practices on the implications of fintech developments for banks and bank supervisors. The BCBS report assesses how technology-driven innovation in financial services may affect the banking industry and the activities of supervisors in the near to medium-term.

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The HKMA has issued a circular to all authorised institutions dated 28 February 2018 drawing their attention to a BCBS report which sets out sound practices on the implications of fintech developments for banks and bank supervisors. The report assesses how technology-driven innovation in financial services may affect the banking industry and the activities of supervisors in the near to medium-term. The report considers various potential future scenarios and draws on surveys with bank supervisors, focusing on three technological developments (big data, distributed ledger technology and cloud computing) and also three fintech business models (innovative payment services, lending platforms and neo-banks).

The BCBS notes that a common theme across the various scenarios is that banks will find it increasingly difficult to maintain their current operating models given technological change and customer expectations. The adoption of fintech means the scope and nature of banks' risks and activities are rapidly changing and rules governing them may need to evolve. These developments may prove to be more disruptive than previous changes in the banking industry. The HKMA encourages authorised institutions to study the paper and in particular emphasises the importance of senior management's role in assessing the strategic risks that changing technology creates in the banking industry. The HKMA notes that it will continue to monitor and assess how AIs manage such risks as part of their ongoing supervision.