HKMA unveils public consultation on virtual bank guidelines

The Hong Kong Monetary Authority today published a consultation on guidelines it is proposing to issue in May that it says will cover the way it plans to regulate “virtual banks” in the Special Administrative Region.

The guidelines come as part of a package of initiatives announced in September that were said to represents Hong Kong’s entry into a new era of “smart banking”.

In a statement, the HKMA said it will welcome feedback from interested stakeholders until 15 March, with the final regulations due to be issued in May.

Non-financial and traditional banks can apply for the licences now, the HKMA said.

The HKMA added that it “welcomes the establishment of virtual banks in Hong Kong”, and that it believes the development of such banks “will promote fintech and innovation” in the jurisdiction, while also offering consumers alternatives as well as new customer experiences.

“In addition, virtual banks can help promote financial inclusion as they normally target the retail segment, including the small and medium-sized enterprises [sector],” the statement said.

As envisioned by the HKMA, the virtual banks will be required to have at least one physical office and a centre to receive complaints from customers, even if their banking operations take place exclusively online.

As virtual banking is a new business model in Hong Kong, operators of such banks are being told that they must provide evidence of an “exit plan” at the time of application, “so that they can unwind their businesses in an orderly manner should it become necessary”, the HKMA said, and all virtual banks will need to join the deposit protection scheme, which offers depositors compensation of up to HK$500,000.

The South China Morning Post reported last week that the HKMA had received expressions of interest from 10 local and overseas companies looking to set up virtual banks in Hong Kong.

One of these, as reported here last October, is ITF, a new financial technology bank in which veteran US investor Jim Rogers (pictured left) has a stake. ITF (Into the Future) Corp will be headquartered in Hong Kong but also currently has offices in Singapore, and has applied for licences in both jurisdictions, and is hoping to begin operations this year. It was founded by Lim Hui Jie  who was chief executive of yjr Singapore-based, Australian Securities Exchange-listed Digimatic Group, until March.

To read the HKMA’s announcement about its new virtual bank regulations, and to download the eight-page Public Consultation on ‘Guideline on Authorisation of Virtual Banks’click here. 

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