Hong Kong could become the world's first Virtual Financial City where all financial transactions would be seamlessly and electronically connected. This is envisioned by the Informal Working Group set up by the Financial Secretary Mr Donald Tsang to study the long-term strategy in the development of information technology in the financial markets in Hong Kong.
Mr Tsang announced his vision of Hong Kong as a service economy in his 1995/96 Budget. Realisation of this vision requires the establishment of a world-class financial technology infrastructure. The Financial Secretary therefore decided to set up an Informal Working Group comprising representatives from both the private sector and the Government in late 1995 to identify areas where Hong Kong's financial infrastructure should be improved and to develop a vision of Hong Kong as a Financial Technology Supercity for the 21st century.
In releasing the Report by the Informal Working Group today (5 February) Mr Tsang said: "To maintain Hong Kong's status as a premier international financial centre in a very competitive environment, it is imperative that we should have an efficient and robust financial infrastructure."
"We must take advantage of the superb telecommunications infrastructure to adapt technology towards the provision of superior services. The Government will play a leading role in achieving the ultimate goal of establishing a Virtual Financial City for Hong Kong in the next century but private sector initiatives will also be essential," said Mr Tsang.
According to the Report, Hong Kong should strive to achieve straight-through processing wher eby all financial transactions are electronically processed in one go, from the point of the first "deal" to final settlement and confirmation. Straight-through processing will help reduce costs and enhance risk and liquidity management. This facilitates the development of electronic commerce and electronic payments in Hong Kong.
The Informal Working Group recommends the establishment of a FinNet, a secure Intranet built for financial transactions throughout Hong Kong amongst all financial institutions and authorised users to facilitate electronic exchange of data in transaction, clearing, settlement and custody. This will allow banks, securities houses and their customers to have seamless transactions between equity, bonds, derivatives and foreign exchange.
The Informal Working Group saw Hong Kong possibly emerging as the first in the world to achieve DvP (Delivery versus Payment), PvP (Payment versus Payment) and TvP (Transfer of title versus Payment) electronically and becoming the first Virtual Financial City. Such a vision would put Hong Kong at the centre to provide financial and other services for China and Asia.
By providing services to the public using information technology, the Government would also reduce bureaucracy and improve openness, said the Report.
The Informal Working Group concluded in the Report by recommending the Government to carry out consultant studies in five areas:
i) Identify any technical impediments and new technical requirements for the implementation of straight-through processing;
ii) Study the impact of electronic banking on supervisory policy;
iii) Study how a secure network, FinNet could be created that would facilitate straight-through processing for the financial sector as a whole;
iv) Find out how linkages could be established between securities and futures clearing houses and the interbank Real-time Gross Settlement system to ensure robust clearing and settlement in a seamless manner.
v) Explore how the Government could work with the private sector to develop security standards such as digital signatures; and examine how the proposed Information Technology Bureau could adjust existing legal, regulatory and infrastructural framework to foster electronic commerce and payments.
Deputy Chief Executive of the Hong Kong Monetary Authority, Mr Andrew Sheng who chaired the Informal Working Group said: "I wish to thank members for their effort and contribution and we are also indebted to those experts whom the Group called upon for technical advice."
Hong Kong Monetary Authority
5 February 1998
