Embracing Digital Transformation Managing Non-Financial Risks Key to Navigating 2020

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Embracing Digital Transformation Managing Non-Financial Risks Key to Navigating 2020

2019 was a challenging year for banks in Hong Kong. The low interest rate environment and muted loan growth throughout the year continued to squeeze margins and revenues. The year also saw an increasingly competitive landscape in Hong Kong with the issuance of eight virtual bank licences by the Hong Kong Monetary Authority (HKMA). The launch of these new players has been keenly anticipated – not just in Hong Kong, but also across the rest of Asia – and will spur greater competition for customers and market share once they commence operations later in the year.

These challenges for banks are expected to persist in 2020, with rapid change the new constant. In KPMG’s recently published annual Hong Kong Banking Outlook, our subject matter experts offered a number of predictions for the industry, which also shed light on three broader trends around competition, digital transformation and risk. 

With a goal to alleviate the pressure of the public healthcare system and maintain its long-term sustainability, the Food and Health Bureau (FHB) has implemented the Voluntary Health Insurance Scheme (VHIS) with effect from 1 April 2019 to regulate individual indemnity hospital insurance products and encourage citizens to use private health care.  Insurance companies seeking to offer VHIS products need to register as a VHIS Provider and have the individual indemnity hospital insurance products certified by the FHB as Certified Plans under the VHIS.

VHIS is a revolutionary change to the healthcare industry.  People in Hong Kong are provided with additional choices of healthcare products which are regulated.  Moreover, it is the first time that qualified premiums paid for insurance products can be deductible from a Hong Kong salaries tax perspective.
 

Cloud computing has become part and parcel of businesses’ daily operations, from real-time processing and managing user inputs to data storage. A much talked-about example would be Alibaba Cloud technology’s success in processing up to USD 1 billion of gross merchandise volume in 68 seconds with zero downtime at the double-11 online shopping campaign. Indeed, more and more financial institutions are considering, or in fact, using cloud computing as the underpinning technology in digitalising their banking services to keep up with the public’s expectations for online banking. 

Inevitably, cloud computing will be used to process personal data, which is defined as any data that relates directly or indirectly to a living individual, from which it is practicable to identify such an individual and in a form in which access to or processing of the data is practicable under the Personal Data (Privacy) Ordinance (Cap. 486)(the “PDPO”) . To put it simply, data users are ultimately accountable for any data breach committed by its cloud providers or any outsourced data processors. 
 

The FATF, the international standard setting body, carried out the third-round Mutual Evaluation (ME) of Hong Kong’s anti-money laundering and counter-financing of terrorism (AML/CFT) regime during 2018 and 2019.  The Report was published in September 2019. The ME result for Hong Kong was a very good one, indeed one of the best outcomes among FATF members, concluding that Hong Kong “has a strong legal and institutional framework for combating money laundering and terrorist financing.” 

We were greatly encouraged by the response and look forward to working with the industry in the coming months on some concrete applications of RegTech in AML/CFT work, such as a practical self-assessment framework for institutions adopting appropriate RegTech in AML/CFT processes, “lab sessions” for testing new software and working to fulfil requirements on data, analytics, skills and expertise etc., to further enhance effectiveness of the AML/CFT ecosystem and the positive impacts of information and intelligence sharing in preventing criminals from getting away with the proceeds from their illegal activities. 

As an international financial centre, Hong Kong is well positioned to take advantage of opportunities provided by increased interconnectivity and rapid technological developments. To support the development of high-quality banking and financial services in the city, HKIB has continuously been committed to nurturing talents through professional development programmes, events, workshops and awards, among other initiatives. This new award was created with the objective to recognise the on-going efforts of financial institutions in fostering the career growth of banking and finance practitioners and their commitment in building employees’ competence to enhance Hong Kong’s position as an international financial centre. 

To fully recognise the efforts of financial institutions, the award programme comprises two categories; HKIB Talent Development Award (Category I) and Talent Development Excellence Award (Category II).  Having demonstrated exemplary achievements and good practices in staff and talent development, DBS Bank (Hong Kong) Limited (DBS), was awarded the Grand Award.