Guideline on Authorisation of Virtual Banks

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05 May 2000

Guideline on Authorisation of Virtual Banks

The Hong Kong Monetary Authority (HKMA) today (5 May) issued a Guideline on the Authorisation of Virtual Banks (the Guideline) under section 16(10) of the Banking Ordinance.

This Guideline is the first of a series of guidelines to be issued by the HKMA on electronic banking. It sets out the principles that the HKMA will take into account in deciding whether to authorise virtual banks, which are defined as companies which deliver banking services primarily through the internet or other electronic channels. While the Guideline is intended mainly for applicants seeking authorisation as virtual banks, some of the principles contained in the Guideline, particularly those relating to risk management of electronic banking activities, will also be relevant to existing banks providing banking services through the internet.

The main principle is that the HKMA will not object to the establishment of virtual banks in Hong Kong provided that they can satisfy the same prudential criteria that apply to conventional banks. In summary, virtual bank applicants must satisfy the following requirements -

  • maintenance of a physical presence in Hong Kong;
  • maintenance of a level of security appropriate to their proposed business;
  • establishment of appropriate policies and procedures to deal with the risks associated with virtual banking;
  • development of a business plan which strikes an appropriate balance between the desire to build market share and the need to earn a reasonable return on assets and equity;
  • clearly setting out in the terms and conditions for their services the rights and obligations of customers; and
  • compliance with the HKMA's guidelines on outsourcing of computer operation.

In line with existing authorisation policies, a locally incorporated virtual bank cannot be newly established other than through the conversion of an existing locally incorporated authorised institution. Furthermore, local virtual banks should be at least 50% owned by a well established bank or other supervised financial institutions. For applicants incorporated overseas, they must come from countries with an established regulatory framework for electronic banking. In addition, they must have total assets of more than US$16 billion and will be subject to the "three-building" condition in respect of its physical offices, but not in respect of its cyber network.

"Essentially, fulfilment of these criteria means that a company applying to set up a virtual bank in Hong Kong must have substance and cannot simply be a "concept", taking advantage of the popularity of the internet. Although technology risk will be a major factor to be taken into account by a virtual bank, the applicant should attach equal importance to the management of conventional banking risks such as credit, liquidity and interest rate risks", said Mr Y. K. Choi, Acting Deputy Chief Executive of the HKMA.

The Guideline is available at the website of the HKMA (

Hong Kong Monetary Authority
5 May 2000

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Last revision date : 05 May 2000