Keynote Speech at “Risk & Compliance Re-imagined” Seminar

Jia Ning (Song), David (Lonergan), Miles (Wen), distinguished guests, ladies and gentlemen, good afternoon.

1. First of all, let me join the organisers to welcome all of you to today's "Risk & Compliance Re-imagined" seminar. Thanks to KPMG and Fano Labs for bringing together industry leaders and technology experts to share the latest trends and innovations in conduct monitoring in the digital age. The insights, experience and use cases to be shared this afternoon testify the transformative impact of the digital revolution on our banking industry, and I am glad to be part of this.
2. The banking industry has undergone a profound transformation in recent years, driven by the relentless pace of technological advancement, with cutting-edge technologies of data analytics, machine learning, and artificial intelligence (A.I.) becoming part of our daily lives. These have in turn led to changes in consumer preferences and behaviours as well as their dynamics with banks. The rise of the internet, smartphones, and tablets has revolutionised the way we manage our finance, with digital payments, real-time fund transfers, online wealth management, and on-the-go transaction tracking becoming the norm.
3. Just like we welcomed automated teller machines in the 1980s, many of us enjoy the benefits brought about by technology innovations, such as faster and more convenient services, and more personalised products at lower prices. However, the rapid adoption of technologies by banks has new implications for consumer protection. For instance, the use of A.I. and machine learning algorithms in credit scoring and loan approval processes may give rise to concerns about bias and discrimination, potentially leading to unfair treatment of certain consumer groups. More notably, the surge in digital scams and fraud has become a pressing concern in many jurisdictions, with the number of cases skyrocketing over the past few years.
4. At the HKMA, our mandate is to maintain the stability and integrity of Hong Kong's financial system. With the emergence of new risks and challenges, conduct supervision and consumer protection have never been more crucial in this endeavour. Today, I would like to share with you how the HKMA has swiftly reimagined and adapted our supervisory approach to conduct supervision and consumer protection in the digital age, with the goal of promoting a safe yet innovative banking environment while protecting consumers.

Online wealth management

1. Let's begin with some statistics that illustrate how bank customers are transforming their behaviours - particularly in the wealth management space. The usage of digital channels by retail customers increased from 51% in 2020 to 66% for the first half of 2025. In other words, two out of every three dollars of investment transactions of retail banks are invested via digital channels. This is part of a clear shift: customers are embracing digital banking not simply as a convenient option, but as their primary way to access products and services. Digital is the new core delivery channel for investment services - not an add-on.
2. The HKMA saw this shift coming well before we reached today's numbers. As you may remember, back in 2017, we launched a number of initiatives to prepare Hong Kong for a new era of Smart Banking - a move designed to help the sector capture the opportunities from the convergence of banking and technology. As part of that initiative, the HKMA worked with the Securities and Futures Commission to provide guidance to the industry for online distribution and advisory platforms for investment products.
3. Now, let's fast-forward to not long ago in December 2024, when we implemented a streamlined approach to the audio-recording requirement for face-to-face and video-conference investment transactions with two main updates.
4. First, the HKMA allows banks to deploy digital tools (such as interactive and step-by-step approach on online banking platforms) as alternative measures to comply with the audio-recording requirement. As a general principle, such alternative measures would be acceptable so long as they can provide equivalent protection to customers as that via audio-recording; and can serve as reliable evidence for handling any customer complaints or disputes in future.
5. Secondly, for retail customers, audio-recording is required for investment products transacted through video-conference only when the sale process involves complex products, or recommendation or solicitation of risk-mismatched simple products. For non-retail customers, the existing alternative (such as documenting the basis of recommended products) to audio-recording now applies in the video-conference context.
6. All these initiatives show our commitment to enhancing customer experience, embracing technology and fostering innovation while ensuring investor protection.

Responsible use of A.I.

1. Among the various technologies employed by financial institutions in Hong Kong to enhance their services and meet customer expectations, A.I. undoubtedly holds the greatest transformative power and is being widely used across operations, such as customer service automation, risk assessment, credit scoring and fraud detection. A survey by a global financial software company identified that the adoption of Generative A.I. (GenA.I.) in Hong Kong's financial institutions was the highest among all markets at 38%, significantly exceeding the global average of 26%. Additionally, a report from the Hong Kong Institute for Monetary and Financial Research indicated steady progress in GenA.I. adoption across Hong Kong's financial services, with 75% of surveyed institutions having implemented at least one GenA.I. use case or piloting new ones. This figure is projected to rise to 87% within the next three to five years.
2. Globally, regulators have been reviewing and refining their frameworks to ensure responsible and ethical deployment of A.I. The HKMA shares this commitment, supporting the integration of new technologies by banks through a "risk-based" and "technology-neutral" supervisory approach. In fact, recognising the potential of A.I. early on, we began studying the matter a couple of years ago, well before it gained popularity. In 2019, we issued a circular¹ outlining four guiding principles, namely governance and accountability, fairness, transparency and disclosure, and data privacy and protection.
3. Although the adoption of GenA.I. in the banking sector is still in its early stages, primarily focusing on enhancing operational efficiency through applications like internal chatbots and coding tools, its capabilities in content creation suggest potential for broader use in customer-facing activities. Possible applications include customer chatbots, customised product and service development, targeted sales and marketing, and robo-advisors in wealth management and insurance. Consequently, the integration of GenA.I. in customer-facing roles raises important consumer protection considerations.
4. Moreover, while GenA.I. shares risk elements with traditional predictive A.I., it also introduces new potential risks, such as the possibility of models generating "hallucination"- that is output that may seem realistic but are inaccurate, incomplete, or irrelevant to the context. In August 2024, we issued further guidance regarding the use of GenA.I. in customer-facing activities by banks, ensuring that the application will be transparent, explainable, and fair. Let me share with you the safeguard measures outlined in this guideline:
   • On governance and accountability, we require the boards of directors and senior management of banks to be responsible for all decisions and programmes driven by GenA.I. We also require banks to adopt a "human-in-the-loop" approach, retaining human control in the decision-making process to ensure that model-generated results are accurate and reliable, and free from bias;
   • On fairness, we require banks to ensure that the results generated by GenA.I. do not unfairly bias or disadvantage any customers. We also require banks to provide customers with the option to opt out of using GenA.I. and to allow customers to request human intervention in decisions made by GenA.I.;
   • On transparency and disclosure, banks are required to disclose to customers the purposes and limitations of using GenA.I.; and
   • On data privacy and protection, banks must comply with Hong Kong's privacy laws.

1. We believe that with the right safeguards in place, we can harness the power of GenA.I. and other innovative technologies to drive sustainable growth and responsible innovation, and realise their true benefits for banks and their customers.

Anti-scam

1. Let me turn to the subject of anti-scam. As mentioned earlier, the surge of scam cases is a key challenge that comes with technological advancements, as criminals are exploiting digital platforms to target unsuspecting victims more easily. According to statistics from the Hong Kong Police Force, the number of scam cases in the first half of this year remained high at 20,760. In addition, scam cases accounted for nearly half of all crimes, meaning that almost one in every two crimes is a scam.
2. The HKMA and the banking sector have been at the forefront in fighting digital fraud and scams. A key initiative is the Anti-Scam Consumer Protection Charters, which has been updated over the years to keep pace with the evolving landscape. The first Charter 1.0 was launched in 2023, when all 23 card issuing banks and 15 merchant institutions in Hong Kong committed not to send instant electronic messages to customers with embedded hyperlinks to request for personal and credit card information online, and to convey the message of "Beware of scams" to the public through various channels.
3. As scammers continued to find new ways to exploit vulnerabilities, such as impersonating various financial institutions including banks, securities firms, insurers, and Mandatory Provident Fund (MPF) trustees, we together with our fellow financial regulators introduced Charter 2.0 last year, expanding the coverage of the Charter to different aspects of the public's daily lives to include banking, insurance, MPF, securities and futures industries, food and beverage, logistics, transport, travel, and retail sectors. Statistics from the Hong Kong Police Force show that the number of phishing scams and the losses decreased by about 40% to 50% respectively in 2024 compared with 2023, reflecting the effectiveness of the first two Charters and various other initiatives against deception in raising public awareness and curbing scams.
4. Recognising that scammers also exploit online platforms to reach out to victims, we launched Charter 3.0 in July this year, bringing together technology firms and telecommunications companies in combatting financial fraud and scams targeting the Hong Kong public. It introduces six key principles, focusing on the reporting of suspected financial fraud and scams, checking of advertisers, internal monitoring processes, enforcement of terms of service, and collaboration on public education and awareness. Through educational initiatives, individuals are empowered with the knowledge needed to make informed decisions. In particular, we believe that cross-sector collaboration will raise the barriers to deception attempts, while helping the public better protect themselves against scams and reduce potential losses. The HKMA, together with our fellow regulators, will maintain communication with participating firms to ensure effective measures are tailored to their service models and the latest scam tactics, thereby helping the public guard against fraud and scams.
5. One important anti-deception toolkit would be the use of technology, including A.I. This may include detection of authentication attempts using deepfake - basically using A.I. to fight A.I. Another application with good potential for wider use is the detection of scam-related transactions and generation of alerts to customers to stop and think, and the identification of vulnerable customers to provide targeted anti-scam educational messages. Given the large volume of payment transactions going through our financial systems every day, the use of technology in this area has huge potential.

Leveraging tech for surveillance

1. The rapid technological advancements have not only reshaped how financial institutions operate their business and interact with their customers, but also have a direct impact on the manner in which supervisory authorities perform their functions. As noted in a publication by the International Financial Consumer Protection Organisation in 2024, the increasing complexity of business models, products, and services offered by financial institutions means conduct supervisors need additional data, better processes and stronger technical infrastructure to carry out their duties.
2. At the HKMA, we are committed to keeping up with the pace of innovations and staying aligned with technological advancements to enhance our supervisory capabilities. We have been utilising various technologies, including robotic process automation, speech transcription and agentic A.I. to enhance the efficiency and effectiveness of conduct supervision by freeing up our colleagues from administrative and repetitive tasks, so we can devote more time and effort to complex tasks and supervisory analysis.
3. For example, we have employed a workflow system powered by Agentic A.I. and web-scraping technologies to vigilantly detect and monitor misleading marketing claims, including the misuse of terms like "bank" or "deposit", to protect the public against misleading advertisements or deceptive practices in the market.
4. In addition, we have introduced a speech-to-text system to analyse audio recordings between banks and their customers. Leveraging the system to transcribe and analyse audio recordings, this system facilitates identification of potential compliance issues, such as inadequate product disclosure for our further review, enhancing the efficiency of our supervision work. Since its adoption, our sampling capacity has increased notably, achieving effort reductions compared with manual audio analysis.

Closing remarks

1. Ladies and gentlemen, we all know that technology is a two-edged sword, presenting both risks and opportunities. On the one hand, advances in technology may amplify conduct risk through complexity, A.I. bias, and weak oversight. On the other hand, technology offers better monitoring tools with improved data analyses, surveillance, and traceability, as the guest speakers at the event today will share in a moment. With innovation and technological advancement happening at breakneck speed, we need to find the right balance between supporting innovation and protecting consumers.
2. Going forward, the HKMA will continue to collaborate with the industry and relevant stakeholders on protecting customers, sustaining our resilient ecosystem for banks to innovate and grow, and promoting Hong Kong's position as a premier international financial centre.
3. I am confident that the insights shared by industry leaders and technology experts this afternoon will provide us with valuable perspectives on how technological advancements can enhance conduct monitoring and compliance functions, taking them to the next level.
4. Thank you, and I wish you all a most fruitful seminar.