Hong Kong SAR – HKMA Requires Enhanced Transparency for Digital Lending Platforms
The HKMA recently wrote to all Authorised Institutions (“AIs”) setting out measures for enhancing disclosure and transparency on digital platforms where retail individual and SME customers apply for unsecured loan and/or credit card products.
Which digital platforms are covered?
This HKMA circular covers platforms including those providing services through the Internet, mobile apps, self-service machines (such as Automated Teller Machines (“ATMs”), Virtual Teller Machines (“VTMs”), etc.) and other digital/mobile devices.
AIs should be proactive in making sure their digital platforms and digital application processes are in compliance with the Treating Customers Fairly Charter on issues such as the promotion of responsible business conduct and responsible borrowing, facilitating prospective borrowers to understand the key features and terms and conditions of the credit products, and giving the prospective borrowers adequate chance to consider the implications of their repayment obligations.
AIs should look at the proper tools and designs to give customers a “double reminder” to consider their borrowing decisions during the application process. To do this, AIs should (i) provide clear and prominent disclosures and (ii) obtain customers’ confirmations of understanding in respect of the;
- key product features as well as terms and conditions of that credit product in general; and
- key details on the specific credit product (i.e. unsecured loan and/or credit card product) that will be applicable to the borrower, or that the borrower applies for, and educational messages on responsible borrowing.
AIs should test digital disclosure approaches to ensure their effectiveness from customers’ perspectives, taking into account factors such as screen sizes, reasonableness of font sizes, minimum scroll down time, prominence of the important information, clarity and conciseness of the information, ease of understanding, etc.
AIs may previously have implemented the enhanced requirements to unsecured lending using the New Personal-Lending Portfolio (“NPP”) arrangement (see the HKMA’s circulars on “Credit Risk Management for Personal Lending Business” on 9 May 2018 and 29 August 2019). This circular requires the enhancements to be extended to digital platforms.
There are different timelines depending on whether the digital platforms are new or existing, however the overriding message from the HKMA is that it expects AIs to take proactive steps to complete any system enhancements as soon as practicable.
New digital platforms – From 1 December 2020 AIs are expected to adopt the enhanced measures for all of their new digital platforms which allow retail individual and SME customers to apply for unsecured loan and/or credit card products.
Existing relevant digital platforms and those implemented prior to 1 December 2020 - AIs should enhance their relevant systems to put in place the enhanced measures within 12 months from the issuance date of the circular (i.e. by 3 September 2021).