Keynote Speech at ALB Hong Kong Regulatory Summit 2025 - “Innovation, Resilience and Sustainability: The Pillars of Tomorrow’s Banking”
Carmen Chu, Executive Director (Banking Supervision), Hong Kong Monetary Authority
1.Good morning, Joseph (Chan, USFST), Amantha (Chia), ladies and gentlemen. It is my great pleasure to be back at the ALB Hong Kong Regulatory Summit, and have this opportunity today to reconnect with all of you in Hong Kong and share my perspectives on tomorrow’s banking.
2.As we reflect on the past year, 2024 was marked by groundbreaking technology breakthroughs, transforming customer expectation, behaviour patterns, and industry trends. Amidst this rapid change, the risk landscape is also in a state of flux. As we gaze into the horizon of “tomorrow”, we have to acknowledge that the risks and opportunities that await us could be vastly different from those we face today.
3.To navigate the uncertainties of “tomorrow”, banks need to engage in adaptive planning and innovate to shorten their strategic planning cycle. Making more agile decisions and taking swift actions are important to shape an advanced and secure banking ecosystem that sustains long-term development.
4.Building such a future-proof banking ecosystem requires three essential pillars: innovation, resilience, and sustainability. Just as a skyscraper, an iconic symbol of the future, it needs a robust foundation to determine the overall functionality and aesthetic appeal, a well-designed structure to prevent it from collapsing under stress or shock, and eco-friendly features to ensure positive impacts on the environment. Similarly, banks are expected to integrate these three pillars to thrive in the evolving landscape.
Innovation in Banking
1.Innovation, as the fundamental blueprint to a skyscraper, allows us to design and build the future banking as desired. The integration of state-of-the-art technologies enables banks to adapt to changing customer needs and stay ahead of the curve. As the renowned computer scientist Alan Kay once said, “The best way to predict the future is to invent it.” This philosophy is also at the heart of the HKMA, guiding the “Fintech 2025” strategy that we unveiled five years ago.
2.Under this strategy, we have launched various initiatives to drive innovation in Hong Kong’s banking sector. Specifically, through the “All Banks Go Fintech” initiative, we introduced the FiNETech series and the cross-sectoral Fintech Connect platform, engaging over 2,200 industry professionals and more than 200 institutions across financial and technology industries to explore new Fintech partnerships. The efforts have also been enhanced with collaboration extended to the Greater Bay Area by partnering with the Qianhai Authority (the Authority of Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen).
3.With risk management in mind, the HKMA also endeavours to promote responsible innovation. The Fintech Supervisory Sandbox, or FSS for short, which was first launched in 2016, provides a conducive environment for banks and their partnering technology firms to test Fintech solutions without the need to achieve full compliance with the HKMA’s supervisory requirements. To date, the FSS has facilitated pilot trials of over 360 Fintech initiatives, involving technologies and applications such as Regtech, biometric authentication, and chatbot.
4.More recently, we have launched the Generative Artificial Intelligence (GenA.I.) Sandbox and the Supervisory Incubator for Distributed Ledger Technology (DLT) to promote safe adoption of these two emerging technologies. So far, 15 use cases from ten banks and four technology partners have been selected for the first cohort of the GenA.I. Sandbox, and a number of banks are getting ready to commence live trials of their tokenised deposit solutions in the Supervisory Incubator.
5.Today, to further expand our efforts, the HKMA is publishing a research paper on DLT, which delves into the latest advancements and potential uses of this technology within the financial sector. The report outlines real-world use cases that offer financial institutions with insights and practical suggestions, fostering a deeper understanding of DLT and facilitating smoother innovations in the Web3 space.
6.Following all these promotional efforts, we are glad to witness that the Fintech ecosystem demonstrates consistent growth across all technology areas in Hong Kong’s banking sector. Specifically, the Regtech adoption shows a remarkable improvement reaching 97% now, from 83% three years ago.
7.Success in Fintech adoption requires a comprehensive approach beyond technology, such as with investments in talent, data governance, and change management. The HKMA will continue to promote innovation in the banking sector, building a more innovative and efficient “tomorrow”.
Resilience of Banking Operations
1.Of course, innovation is only one part of the equation. A well-designed building not only looks aesthetically pleasing but also ensures safety and sustainability. More advanced structural integrity is necessary to sustain from external shocks or stress, particularly when buildings continue to push the boundaries of height. In the world of banking, this translates to robust risk management which provides structural support for both financial and operational resilience.
2.The HKMA recognises the crucial need to manage various risks to ensure financial stability. On the financial front, maintaining a strong capital position is essential for providing adequate buffers to cope with challenges arising from a more challenging credit risk landscape. One of the lessons learnt from the 2023 banking turmoil is the necessity of strengthening banks’ resilience to liquidity shocks, which could potentially be further optimised by integrating robust monitoring of digital banking services.
3.In fact, proper deployment of Fintech solutions could help enhance financial resilience. For instance, A.I. algorithms can provide early warning signals for credit risk, as well as capture and analyse unstructured text for credit analysis. DLT-based settlement systems can automate transactions to improve liquidity risk management. Advanced technologies such as high-performance computing or cloud computing could handle complex and extensive calculations for assessing market risks.
4.Yet, growing reliance on technology can also expose banks to new risks. For one, this dependency increases the likelihood that an IT incident – whether of malicious or non-malicious origin – could end up materially impacting a bank’s operations, reputation and/or even viability. Increasing customer preference for digital banking channels can also open up new avenues for digital fraud, and expose customers to evolving modus operandi, including those launched by fraudsters that take advantage of emerging technologies for deception such as deepfake.
5.Dependency on third parties to deploy these technology solutions can expose a bank to new vulnerabilities, including by increasing the surface area available to a threat actor for launching an attack against the bank. There are increasing incidents where an attack targeting a third-party IT solution provider can propagate across its broader supply chain.
6.Furthermore, the occurrence of other non-financial incidents also poses a significant threat to the resilience of banks. The recent devastating Los Angeles wildfire and Typhoon Yagi in southeast Asia in 2024 resulted in substantial losses, reminding us of the pressing need to appropriately tackle the challenges brought by climate change. Physical risk events, acute or chronic, would affect banks through both their counterparties and their own operations.
7.Against this backdrop, it is crucial that banks actively work to enhance their operational resilience, or the ability to continue delivering their critical operations through severe but plausible disruptions, whether they be from IT failures, third party-related vulnerabilities or natural disasters. We have been guiding the industry to achieve this objective by May 2026. We are pleased to note that all banks in Hong Kong have already developed operational resilience frameworks and have continued to refine them based on the HKMA’s feedback.
8.At the same time, the HKMA and banking industry are working closely with law enforcement in the fight against digital fraud. Collectively, we have launched the Suspicious Account Alert, dynamic fraud monitoring to generate targeted customer alerts on suspicious transactions and in-App authentication of online credit card payments, to name just a few of the initiatives introduced to date. Retail banks in particular are continuously enhancing e-banking security measures as the modus operandi of fraudsters and scammers continue to evolve rapidly and globally. There is certainly a common purpose and concerted efforts in further promoting customer empowerment and public awareness.
9.As systemic risks that can affect all sectors of the economy become increasingly apparent, the importance of resilience – both financial and non-financial – cannot be understated. The HKMA will continue to actively assist the industry on this front, and provide practicable guidance on key steps along their resilience journey, with a view to further augmenting the industry’s overall readiness to handle disruptions.
Sustainability in Banking
1.Moving on to the last pillar of sustainability, with business relationships and investment that cut across all sectors of the economy, banks also have far-reaching impacts on the environment, society, and governance. Integrating environmental sustainability considerations into the banks’ core operations will help to combat climate-related risks, which could also enhance the banks’ resilience in return.
2.The HKMA has been devoting significant efforts to the sustainability agenda. We focus on building a climate-resilient financial system, and foster a robust green and sustainable finance platform in Hong Kong. The Sustainable Finance Action Agenda issued in last October sets out the HKMA’s vision to further consolidate Hong Kong’s position as the sustainable finance hub in the region and support the sustainable development of Asia and beyond.
3.The Agenda also calls for banks to strive for achieving net zero in their own operations by 2030 and in their financed emissions by 2050. To assist in enhancing resilience against climate change, the HKMA closely engage with banks along their transition journey, providing guidance, support and tools. To name a few, we have shared good practices and guidelines, as well as two rounds of climate risk stress tests. The list goes on as we fight against the threat of climate change with our banks hand in hand.
4.Just as modern buildings are fitted with advanced features such as smart windows to minimise environmental impacts, Fintech could also facilitate banks’ ambition to net zero. For instance, automatic analysis of daily expenditure and visual presentation allow customers to understand their carbon footprints and encourage change in behaviours. The use of A.I. to enable more green financial products could create a positive ripple effect on the society, transforming the investing patterns to greener projects.
5.Looking into the future, as supervisors, the accelerating pace of innovation is also compressing our time horizon for supervisory decisions. Traditional approaches often rely on more lagging data and heavy manual analyses. The changing tides of risks require us to get prepared to make more agile and timely risk decisions, as well as to embrace more proactive and forward-looking approaches.
6.As the saying by Steve Jobs goes, “Innovation is the ability to see change as an opportunity, not a threat.” The HKMA is paving the way in exploring more advanced supervisory technologies, also known as Suptech, to enhance our supervisory practices.
7.Building on the successful launch of our foundational knowledge and workflow management platforms, we have furthered our innovative efforts by incorporating GenA.I. into our supervisory processes. Several GenA.I. pilots have been recently implemented, such as to analyse unstructured survey responses and assist in risk profiling and prioritisation.
8.Looking ahead, we will also put strong emphasis on data. In addition to promoting the adoption of more sophisticated data governance and data infrastructure, we will work with the industry to explore the possibility of expanding the scope and granularity of risk data. By combining these efforts with our analytics capabilities, we aim to further harness the power of data-driven insights, allowing us to navigate the evolving landscape with greater agility and confidence.
9.Tomorrow's banking stands at the intersection of responsible innovation, resilience, and sustainability, for which the collective efforts across the industry necessitate. There is a key question for all of us: what more can supervisors and industry players do to further innovation and shape a more supportive environment for Fintech, while ensuring prudent risk management and pursuing the best interests of customers?
10.On that note, I look forward to a fruitful discussion and sharing today. Thank you.
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