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Hong Kong Virtual Banking is not only an important milestone, but for Fintech There’s More to Come

By Charles Ng, Associate Director-General at Invest Hong Kong


Hong Kong’s position at the forefront of the banking industry and as a FinTech leader is reinforced by the recent issuance of three new virtual banking licenses by the Hong Kong Monetary Authority (HKMA), a real milestone for the banking sector, one of innovation and opportunity.

During the final week of March, the HKMA awarded virtual banking licenses to Livi VB Limited, SC Digital Solutions Limited and ZhongAn Virtual Finance Limited. The licenses are the first of their kind to be issued by the HKMA. It meant that, at a stroke, Hong Kong had three more licensed banks – it now has 155. And there will be more to come, because the HKMA said it’s processing five more virtual bank applications.

Hong Kong has a long history as Asia’s leading financial centre. With the number of international banks, insurers and other financial services companies bank in the city, it has always been at the cutting edge of technological advances in FinTech – from letters of credit 100 years ago to algorithmic trading 25 years ago to blockchain and artificial intelligence today. Yet, even with such a rich banking heritage, history will show these virtual banking licenses to be an important milestone for Hong Kong, a turning-point in the development of its banking sector.    

The virtual banks need to have one physical office in Hong Kong; thereafter they will operate online only. They will contribute towards greater financial inclusion particularly among small and medium-sized enterprises (SMEs), which are so essential to Hong Kong, and accelerate the move to electronic payments. In fact, the licenses provide tangible evidence of FinTech serving the public good. And that’s good for all: SMEs, individuals and the fintech community.

We are told the virtual banks will take 6-9 months to launch their initial services. That’s good news for InvestHK: FinTech businesses, investors, entrepreneurs, regulators and other stakeholders can look forward with even greater anticipation to the 2019 Hong Kong Fintech Week, which is perfectly timed (4-8 November) for the new banks to showcase their services so we can all take a closer look.

Hong Kong is the world’s third largest and Asia’s biggest financial centre. It’s also second in the world for insurance, with 160 authorised insurers, and number one in Asia for asset management. The city’s accumulation of market intelligence, regulatory insights, and technical knowhow from both East and West make it a cradle for truly global FinTech products that can be tailored to any market and applied anywhere in the world.

For FinTech companies, the virtual banking licences present just one area of opportunity. In December, the Insurance Authority awarded its first virtual insurance license to Bowtie Life Insurance Company Limited (Bowtie), evidence of its Fast Track scheme taking effect. Meanwhile, HKMA is launching open APIs for the banking sector – another initiative to boost competitiveness, improve customer experience, upgrade know-your-customer (KYC) processes and keep up with global standards.

Elsewhere, the Hong Kong Stock Exchange (HKEX) teamed up with Digital Asset to build a blockchain platform for post-trade allocation and processing of northbound trading for Stock Connect, a collaboration between HKEX and the Shanghai and Shenzhen stock exchanges.

Also, we saw the HKMA’s new blockchain-based banking trade finance platform formally launched at the end of last year. The ‘eTradeConnect’ platform combines the services of 12 major domestic banks including HSBC and Standard Chartered Bank to enhance cross border trade, and will link up with another blockchain platform called ‘we.trade’, to allow better trading among a network of nine banks across 14 European countries including Deutsche Bank, Rabobank, and UBS.

Last September, the HKMA unveiled four initiatives to facilitate the wider adoption of regtech that included anti-money laundering, risk management and compliance, machine-readable regulations and supervisory technology (suptech) for regulators. Banks or tech firms with regtech projects and ideas were invited to join the HKMA’s FinTech Supervisory Sandbox to experiment, develop and test-run. This is ongoing.

Hong Kong is a city that’s seeing rapid change thanks to the growth of its FinTech sector, which now numbers more than 550 FinTech companies. This is set to continue at a similar if not faster pace through the remainder 2019 and beyond with all the new initiatives. Throw in its central role in the development of the Greater Bay Area and reason for having a Hong Kong base becomes even more compelling.