HK regulator considers virtual banks’ progress towards business commencement satisfactory

Maria Nikolova

As at April 24, 2020, one virtual bank has officially started operations, providing Hong Kong clients with innovative financial services.

Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, today replied to a question concerning Hong Kong’s virtual banks.

Let’s recall that the Hong Kong Monetary Authority (HKMA) granted banking licences to eight virtual banks in the first half of 2019. Today, Christopher Hui confirmed that, as at April 24, 2020, one virtual bank has officially commenced operation, providing the public with innovative financial services such as remote account onboarding and online lending.

Three virtual banks are piloting operation in the HKMA’s Fintech Supervisory Sandbox, with services provided to a confined group of customers. The pilot trials enable the banks to collect customer feedback for refining their products and services, and help them get better prepared for the official launch of services at a later stage.

The remaining virtual banks are also pressing ahead with the necessary preparatory work, with a view to providing services to the public as soon as practicable. Noting that the outbreak of the COVID-19 has inevitably affected the virtual banks’ preparation for launch of services, the HKMA considers the progress made by virtual banks towards business commencement satisfactory.

Mr Hui adds that, following the granting of the eight virtual bank licences, many institutions have approached the HKMA enquiring about applying for a licence to operate a virtual bank. The HKMA will monitor the operation of the existing virtual banks after they launch their business, and assess user response to their services, the level of market acceptance and the impact on the banking system. The assessment results will be taken into account in considering the way forward, including whether to grant additional licences to virtual bank operators.

The HKMA requires virtual banks to complete a series of preparatory work before commencing business, including developing IT systems and establishing robust risk management measures. On technology risk management, virtual banks are required to conduct comprehensive independent assessments of their technology risks, including an assessment of their cybersecurity risk under the Cyber Resilience Assessment Framework, before business commencement. In addition, virtual banks should establish procedures for regular reviews of their technology risk controls to ensure that these controls remain appropriate notwithstanding continued development in technology.

The HKMA will conduct regular reviews on the effectiveness of virtual banks’ technology risk management and cybersecurity controls following their commencement of operation.

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