First published: 09th February 2018
The Hong Kong Monetary Authority has published a revised Guideline on Authorization of Virtual Banks and announced that the public are welcome to provide comments on it no later than 15 March 2018. The consultation document is available on the HKMA website; it adds 5 new principles to the previous Guideline (issued in 2000 and updated in 2012), and modifies 13 existing principles.
The HKMA now "welcomes" the establishment of virtual banks, anticipating that they will promote the application of financial technology and innovation, offer a new customer experience, and promote financial inclusion. Virtual banks should not impose a minimum account balance or low-balance fees. They will be expected to operate as a locally-incorporated bank, and will be subject to the same set of supervisory requirements applicable to conventional banks, adapted to the virtual business model. They will be required to provide an exit plan, in case their business model turns out to be unsuccessful.
All versions of the Guideline recognise the vital importance of information security, require that the controls in place to be "fit for purpose" and that there is a security assessment report from from a qualified and independent expert, although no mention is made of a standard that should be used.
Virtual Banking has not, previously, been a popular or successful business model in Hong Kong. Answering a question in the Legislative Council on 13 December 2017, the Secretary for Financial Services and the Treasury, Mr James Lau revealed that, since the issuance of the Guideline in 2000, "a number" of banks discussed transforming their business model with the HKMA, but only one licensed bank did actually implement the change. It later abandoned the business model, due to "commercial considerations".
The public consultation coincides with a wave of enthusiasm about 'Fintech'.