Trade Finance

Riding on the earlier success on the distributed ledger technology (DLT) proof-of-concept work on trade finance led by the HKMA, seven banks in Hong Kong decided to commercialise the prototype into a production system named Hong Kong Trade Finance Platform (HKTFP) to digitise and share trade documents, automate processes and reduce risks and fraud.

As a follow-up, the HKMA signed a Memorandum of Understanding with the Monetary Authority of Singapore (MAS) in November 2017 to jointly build the Global Trade Connectivity Network (GTCN). GTCN will connect Singapore’s National Trade Platform with the HKTFP to form a cross-border DLT infrastructure in order to digitalise cross-border trade and trade finance processes, and make them safer, more efficient and cost-effective. The HKMA and MAS are exploring with other jurisdictions on their interest in participating in the GTCN.

Open Application Programming Interface (Open API)

Open API allows financial institutions to open up their internal IT systems and data for programmatic access by third party service providers or its counterparts in an open and documented manner. Effective implementation of Open API will enable, for example, information of different banks’ products and services to be aggregated under the same website/app for comparison and financial planning by users with ease. New service providers may also make use of the open information to offer unique products and new customer experience.

To facilitate the development and adoption of Open API by the banking sector, the HKMA published an Open API Framework on 18 July 2018 following the completion of a public consultation from January to March 2018. Banks are expected to implement Open APIs in four phases starting from 2019. Click here for more information about the implementation phases.

 

Distributed Ledger Technology (DLT) Research Studies

The HKMA launched a comprehensive research on DLT. The Hong Kong Applied Science and Technology Research Institute (ASTRI) was commissioned for the first stage research and published a whitepaper in November 2016. The Whitepaper discusses the potentials of DLT for the financial services and identified some possible challenges related to governance, risk management, compliance, legal issues and the actual deployment of DLT solutions. Click here to download the first Whitepaper.

In October 2017, the HKMA published Whitepaper 2.0 on DLT to deliver the results of the second stage of the research. The second Whitepaper confirms the promising nature of DLT while acknowledging that DLT is not a universal solution for all financial applications. It also addresses governance, legal and compliance implications and general control principles for DLT for the banking and payment industry, and offers corresponding advice from experts. The second Whitepaper delivers more detailed findings from the three proof-of-concept trials, namely trade finance, digital ID management and mortgage loan applications, along with assessment on whether some of these works can be put into action. Click here to download the second Whitepaper.

Cybersecurity Fortification Initiative (CFI)

As the HKMA’s first fintech initiative, the CFI was fully rolled out in December 2016. The CFI aims to raise the cyber resilience of our banking system, and is underpinned by three pillars:

I. A Cyber Resilience Assessment Framework (C-RAF) to establish a common risk assessment and simulation testing framework for banks;

II. A Professional Development Programme (PDP) to offer trainings and qualification certifications in cybersecurity for assessment and testing under C-RAF; and

III. A Cyber Intelligence Sharing Platform (CISP) to facilitate sharing of cybersecurity intelligence.

The C-RAF is being implemented by batches. The first batch of 30 Authorized Institutions (AIs) completed the assessment in September 2017 and will complete the simulation test by mid-2018. All the remaining AIs will be expected to complete the assessment by end-2018 in the second phase.

An industry expert panel was formed to identify a list of equivalent qualifications for the PDP, recognising relevant or equivalent experience and expertise in the cybersecurity field. Meanwhile, the Hong Kong Institute of Bankers is the first organisation to deliver relevant PDP training and examination.

The first version of the CISP was launched in December 2016. All banks can now access and share their cybersecurity intelligence on the platform. The operator of the CISP will periodically update and enhance its functionality.

Central Bank Digital Currency (CBDC) Research Studies

In collaboration with the three note-issuing banks, the Hong Kong Interbank Clearing Limited and the R3 consortium, the HKMA has commenced a study on Central Bank Digital Currency (CBDC) using DLT with a view to better understanding its feasibility, implications and possible benefits through exploring its use in domestic inter-bank payments, corporate payments at wholesale level and delivery-versus-payment debt securities settlement. A number of other central banks are also actively exploring and conducting research on the issuance of CBDC using DLT. The HKMA is monitoring the results of such studies while conducting its own work.