Raymond Chan, Executive Director (Enforcement and AML), Hong Kong Monetary Authority
Good afternoon everyone!
Let me first of all thank Deloitte, and in particular Chris (Cheung, Partner of Deloitte China) and Reginia (Chan, Partner of Deloitte China), for the invitation and putting together a thought-provoking series of very topical discussions featuring speakers from around the world, and most importantly, for hosting this symposium in Hong Kong.
I would like to take this opportunity to return to a subject which I talked about last September in Shanghai: the need to “reset” the ecosystem response to meet the challenges posed by the digital evolution of criminality. Firms like Deloitte play an important role in helping to deliver that reset, providing valuable insights and expertise to both banks and supervisors. We did in fact work with Deloitte between 2019 and 2024 to uplift the adoption of anti-money laundering (AML) Regtech by banks in Hong Kong, as well as implementing fundamental changes to our own supervisory approach for anti-money laundering and counter-financing of terrorism (AML/CFT).
I arrived back in the world of AML as that engagement was concluding, and if I may share an overarching observation after a year in the post, I am very impressed by the progress we have made in promoting the adoption of AML Regtech by banks. But I can also see clear room for further advancement in terms of the breadth and depth of the use of technology by the banking sector so as to lift the ecosystem to the state we have in mind.
Let me quickly recap the ecosystem reset which, in our opinion, is necessary to tackle the growing complexities of modern financial crime threats, along with the convergence of fraud with new platforms for money laundering, including crypto.
First, we need to increase the collaboration and information sharing both between the public and private sectors and among private institutions;
Second, we need to enhance the leverage all stakeholders in the ecosystem are able to obtain from the use of technology, particularly artificial intelligence (A.I.); and
Third, we need to recalibrate the AML regulatory perimeter to keep pace with rapidly evolving trends, including the growing use of crypto facilitated by a broader range of financial institutions.
We have already made some inroads in certain areas of the resetting process. In the next ten minutes or so, I would like to share with you the progress we have made on each of these three respects and the further actions we plan to take.
The first part of the ecosystem reset – increased collaboration and information sharing – is progressing well. Both the Hong Kong Monetary Authority (HKMA) and the Hong Kong Police Force (HKPF) have been proactively encouraging stronger collaboration to facilitate the exchange of data within the Hong Kong ecosystem. This takes place both in public-to-private platforms, such as the Fraud and Money Laundering Intelligence Task Force (FMLIT), as well as private-to-private platforms such as the sharing of corporate account information via the Financial Intelligence Evaluation Sharing Tool (FINEST) platform.
Our efforts are starting to pay off: suspicious transaction reports made by banks following the receipt of intelligence shared via FMLIT quadrupled year-on-year in 2024, contributing to an increase in criminal proceeds restrained or confiscated of 34% during the year. We have also recently made very good progress in introducing the legal changes required for expanding the bank-to-bank information sharing mechanism to cover personal accounts information. The Banking (Amendment) Bill 2025, which provides a safe harbour for banks sharing information for the purposes of detecting and preventing financial crime, was introduced into the Legislative Council (LegCo) in April, and a Bills Committee of LegCo has completed its scrutiny of the proposed legislation. If everything goes smoothly, we expect the expanded bank-to-bank information sharing scheme to come into operation by the end of the year.
So step changes are being made in information and intelligence sharing within the ecosystem, but this in itself will not deliver the required ecosystem reset unless paired with the use of technology, which is the second part of the reset we have in mind.
I am sure you have heard about the use of A.I. like deepfake by fraudsters. As criminals digitalise their operations, we must catch up or we will find ourselves always behind the curve. We must also deploy advanced technologies, including A.I., to enable us to draw new and significantly improved actionable insights from the information being collected and shared, to improve our agility to respond to emerging fraud trends, and, most important of all, to ensure the continued effectiveness of our AML regime.
Every stakeholder in the ecosystem has a role to play. For the HKMA, we are actively exploring building a payment data analytics platform which would enable us to find patterns and draw insights from payment data currently residing in the banking system, which have so far been under-utilised. We understand that the HKPF have also set out their own ambition to develop a financial data analytic platform to enhance its capability to develop financial intelligence and harness the power of advanced technologies to combat increasingly sophisticated financial crimes.
As for the banks, many of you would know that we issued a circular last September, asking banks to critically assess the need to deploy A.I. to ensure the continued effectiveness of their transaction monitoring systems and report the assessment results to us by the end of March. We have now received their submissions, and I am pleased to share with you that all the 48 banks with significant operations in Hong Kong and thus required to undertake the assessment are in favour of incorporating A.I. in their transaction monitoring systems. Eighteen of these banks are already using A.I. to augment their transaction monitoring capability and consider that there is further scope to expand such use. Twenty-one banks are not yet using A.I. for transaction monitoring but have a plan to do so in the next one to three years, so we will help them accelerate that deployment through a programme of engagement that will share real-world examples of successes, challenges and opportunities. The other banks have not yet made up their minds, but will be included as part of that initiative so that we can achieve more consistent levels of innovation and adoption across the entire banking sector.
While each of us digitalises our AML processes, we must not overlook the need for building a more interconnected ecosystem with advanced analytics being applied to the fullest range of data available to us. It is critical to make sure these advanced capabilities evolve based on a number of design principles including common data standards, reducing duplication and reaping the potential for interoperability where appropriate. The HKMA will continue to play an active role in this respect.
Apart from deploying the right technologies, we must also keep an eye on the changing nature of the threats we face and adjust the regulatory perimeter accordingly, which is the third part of the ecosystem reset we have in mind. The increasing global use of cryptocurrencies and the rapid development of Distributed Ledger Technology (DLT) have the potential to enhance the transparency, efficiency and security of financial transactions, but also provide further opportunities for abuse. Bad actors will not hesitate to exploit any opportunity to abuse the hyper-global nature of digital assets and will inevitably engage in “regulator shopping”, switching to industries or jurisdictions with weaker regimes.
This can only be addressed through coordinated and concerted efforts to implement international standards across the whole financial industry. Hong Kong has established a strong regulatory perimeter through the licensing regime for Virtual Asset Trading Platforms, with the Securities and Futures Commission (SFC) as regulator, and the proposed licensing regime for fiat-referenced stablecoin issuers under the HKMA. We are working with the SFC to ensure AML/CFT standards are aligned and improvements made in tandem. We will soon publish a consultation paper on the AML/CFT requirements for our stablecoin regime and I strongly encourage you all to provide feedback.
Some of you may have doubts in your mind about whether the ecosystem reset I talked about just now is achievable. Let me share with you my experience in implementing the “All banks go Fintech” initiative, which forms part of the HKMA’s Fintech 2025 Strategy launched in 2021. In my former capacity as the Executive Director looking after the prudential supervision of banks, we rolled out a new Fintech Promotion Roadmap together with the SFC and the Insurance Authority, focusing on the Fintech business areas of Wealthtech, Insurtech and Greentech as well as the technology types of A.I. and DLT. Take the Commercial Data Interchange (CDI) as an example: it now involves 26 banks and 15 data providers. By facilitating banks’ access to alternative credit data, the CDI has helped to improve lending to small and medium-sized enterprises, with estimated credit approvals exceeding HK$41 billion by the end of March. According to a recent report released by the Hong Kong Institute for Monetary and Financial Research, as of March this year 75% of the surveyed financial institutions had already implemented at least one use case of generative A.I. (GenA.I.) and are piloting or exploring others. I have also seen some smaller institutions, which were formerly less receptive to advanced technologies, undertaking pilot tests within the HKMA’s Project Ensemble Sandbox and GenA.I. Sandbox. What I want to point out is that, after years of perseverance, we are not too far off from accomplishing “All banks go Fintech”.
Ladies and Gentlemen, in a digital world where customers expect a fast and seamless experience, we must make sure that financial services are safe and secure. As I said at the beginning, we can achieve that only by “resetting” our approach as part of a broader strategy to combating the digital evolution of criminality. Achieving that “reset” is easier said than done. However, drawing on my experience in driving the “All banks go Fintech” initiative, if each of us continues to press ahead, I am confident we can get there, and I look forward to your help in making this happen.
Thank you, and I wish you all a productive and inspiring conference.
