20 May 2020 Sumit Indwar  - Clara Hackney Financial Regulation

HKMA looks to 2020 with green finance, risk and tech

The HKMA recently published its annual report for 2019 which as well as looking back at the last year, also sets out some of the HKMA’s plans for the coming year. We have selected some of the topics which the HKMA indicated will be on the to-do list this year.

  • Operational resilience has been a hot topic over the past few months in Europe and in the UK, and with the current difficulties which Covid-19 has ushered in, it is perhaps not surprising to see that the HKMA plans to focus on continuing to strengthen the capability of the banking sector to address both existing and emerging operational and technology risks. Specifically, the HKMA will complete a comprehensive review of the Cybersecurity Fortification Initiative which was launched in 2016 to raise the level of cybersecurity of banks in Hong Kong SAR using a three-pronged approach. The review is aimed at fine-tuning the initiative which the HKMA will continue to pursue. Also on the tech side, the HKMA has said it will step up the supervision of risks arising from AIs’ increasing reliance on cloud service providers and conduct examinations to assess AIs’ IT governance. This is an area which the SFC has also been examining.
  • Virtual banks are also singled out for some special attention, with the HKMA saying it will monitor these new market participants closely. In particular, the HKMA highlights areas such as risk management (particularly technology risk), protection of customer data, and AML/CFT issues.
  • We will see the HKMA continuing to encourage Regtech, with the promise of specific initiatives to help develop a larger and more diverse Regtech ecosystem.
  • Regtech also comes into another area of focus - AML/CFT. The HKMA says that enabling AIs to use Regtech for AML/CFT purposes will be a key supervisory area of focus in 2020, for example using innovation in areas such as transaction monitoring and screening; while also enhancing the collective ability of the industry to reduce the risk of ML networks by enhancing data, analytics, information delivery and collaboration, as well as skills and expertise. The HKMA will also undertake a thematic review of AIs’ transaction monitoring systems, working with a leading global technology firm.
  • Another area which is rapidly climbing up the leader board of importance is green finance. The HKMA had already previously announced its three-phased approach to promote green and sustainable banking, and in 2020, the HKMA will proceed to phase II to set supervisory expectations and requirements. For example, the HKMA is already embarking on the “greenness” self-assessment for around 50 AIs based predominantly on their asset sizes and business activities. Selected AIs will have 12 weeks to complete this initial round of assessment. The HKMA has also said it plans to carry out thematic reviews of selected AIs’ actual practices in managing climate risks, and it plans to issue a paper illustrating its supervisory expectations and approaches to green and sustainable banking.

The HKMA lists other areas of focus for the coming year, including ensuring Hong Kong remains a hub for fintech, corporate treasury centres and asset management, as well as promoting international and regional co-operation.