31 Oct 2022
Opening Keynote at the Hong Kong FinTech Week 2022
Eddie Yue, Chief Executive, Hong Kong Monetary Authority
Innovation in action - looking back to look forward
Introduction
1. Good morning, everyone. A very warm welcome to Hong Kong FinTech Week.
2. This is an exciting week for Hong Kong. For the rst time in three years, we are
welcoming many of our overseas friends to Hong Kong again for this Fintech Week and
also the Global Financial Leaders' Investment Summit and Rugby Sevens after that.
This marks the beginning of our path back to normality, and all visitors can see and feel
the vibrancy and dynamism of our city.
3. Part of this dynamism comes from the fast-growing ntech ecosystem in Hong Kong.
Innovative ntech rms are exploring ways to drive the momentum towards an even
more tech-enabled nancial industry. Many are looking at how to make use of the
fastevolving blockchain protocols to create products or services through crypto, stablecoins,
NFTs, DeFi and the metaverse.
4. Some nancial institutions are already using elements of the metaverse for brand-
building and customer education; and it will be fascinating to see whether and to what
extent the metaverse can form a new landscape for real-world nancial activities one
day. I hope the opening you just saw illustrates how the metaverse can mirror - and
even improve on - reality. For example, my avatar denitely looks cooler, and is
obviously a much better table tennis player than the real me.
Looking Back
5. Three years ago, at this same event, I said that technology adoption would be a bumpy
road. Of course, no one could have guessed how bumpy things would get, but for Hong
Kong this journey has also been rewarding and fascinating. Our ntech journey started
in 2016, with the Smart Banking Initiatives launched in 2017, and leading up to the
"Fintech 2025" Strategy we rolled out last year.
. In between, we have introduced a Faster Payment System (FPS), which now has 11
million registrations and more than a million transactions a day, and also eight virtual
banks with 1.7 million accounts and HK$25 billion in deposits, delivering innovative and
inclusive products entirely through digital channels.
7. Last week, we launched the Commercial Data Interchange, or CDI, that makes nancial
data sharing between banks and data providers more ecient, so that borrowers,
especially SMEs, can make use of their own data, such as payment and
business-tobusiness e-commerce data, to gain better access to bank loans. We are also one of the
few central banking institutions researching and piloting both wholesale and retail
Central Bank Digital Currency, or CBDCs.
. If you ask me whether I anticipated all these developments when we organised the rst
Fintech Week back in 2016, the answer is denitely no. Technology has been developing
incredibly fast, and digitalisation of nancial services has been accelerated, and not
impeded, by the pandemic. The momentum for our ntech journey is only getting
stronger.
9. We will continue on this path of ntech innovation. And to help us navigate this long,
winding and foggy road, we should take a pause and look back, and ask ourselves what
we did well, what we could have done better, and how to do things better in the future.
10. Today I would like to take this opportunity to share three reections with you. I won't
pretend that these are in any way denitive. But these, I believe, are the key takeaways
from our experience so far.
Radical Open-Mindedness
11. The rst reection is the need for radical open-mindedness, a term that I borrow from
Ray Dalio, who used it to describe idea generation in investments. I would say this is
even more applicable to ntech innovation - we need to be radically open to new ideas
and try things that could make the nancial system better.
12. When we brainstorm ideas for new ntech projects, we usually won't know where they
will lead us. The only sure thing is that if you don't try, you never get anywhere. The key
is to learn from failure and move on. This mindset has gotten us the hugely popular
FPS, eight virtual banks and a vastly more advanced data-sharing infrastructure in our
nancial system.
13. In the beginning we were sometimes a bit resistant, wondering how new creatures like
crypto, stablecoins, DeFi and other blockchain-based innovations can t into
"mainstream nance". No one can say that they were sure how these innovations would
shape things to come, and some of us, understandably, were just hoping they would go
away so that we could get back to business as usual. Financial markets don't really like
surprises, and the idea that disruption is a good thing was a bit unfamiliar to many.
14. Over time, it has become apparent that these innovations, in particular the technologies
and business innovation underpinning them, are here to stay and will naturally develop in
a healthy nancial system like Hong Kong's. They have the potential to improve
eciencies, reduce intermediary cost and promote innovation.
15. Digital innovations encompass a wide spectrum of products and services beyond the
commonly-known crypto-currencies. DeFi, given its composability feature, can inspire
innovation in nance. Take tokenised green bonds as an example. We concept-tested
the idea with the BIS Innovation Hub last year and are adopting it for an actual issuance
later this year. When both bond and cash are tokenised and brought on-chain, all bond
lifecycle events like asset servicing, trading and redemption can happen more eciently
in a distributed manner. It could even make possible real-time tracking of the green
impact.
1. In addition to traditional nancial assets, the blockchain technology also allows
fractionalisation of asset ownership in art, real estate or other assets, creating new
forms of nancial intermediation. With radical open-mindedness, we can use
technological innovations to make nancial markets more complete and bring benets
for the real world.
17. Now, wearing my hat as a regulator, a "radically open mind" does not mean that nancial
stability falls by the wayside. The use of digital innovations needs to be complemented
by a clear approach to money laundering and nancial risks. We continuously work with
banks to achieve this. We also ensure that consumers and investors understand the
risks associated with investments in these still-largely unregulated products.
1. To do this we need to put in the right guardrails. The basic principle is "same activity,
same risks, same regulation", such that digital assets performing similar functions to
traditional products should be subject to similar regulations. This is exactly what we and
other regulators in Hong Kong are doing.
19. The HKMA is putting in place a risk-based and proportionate regulatory regime for
payment-related stablecoins. The SFC is introducing a framework to regulate digital
asset trading platforms. We have issued guidance to banks on what they need to watch
out for if they wish to offer crypto- or DeFi-related services, whether for account opening
or custodial services.
20. These guardrails will provide a solid foundation with a clear set of rules, on which a
vibrant crypto and DeFi ecosystem can be built in Hong Kong.
21. Whether I'm wearing my hat as market enabler or regulator, there is a need to be
radically open-minded; to have a welcoming attitude to new ideas, so that we can
achieve public good through a fair balance between innovation and stability.
"More is More"
22. My second reection is "more is more". We may be more familiar with "less is more",
which is the mantra for designing friendly user interfaces or cool technology products.
But new platforms in retail payments, data infrastructure and cross-border payments
tend to be more successful and sustainable when they achieve widespread adoption
and leading to strong network effects.
23. Just think about FPS. Would you still use it every day if your friends and family were not
on the platform? From the design stage, we aimed to include more currencies and
payment institutions, so as to attract a rapid build-up of users. The result is the world's
rst multi-currency instant payment system connecting banks, e-wallets, and
customers. With this strong network effect, FPS adoption in Hong Kong is perhaps one
of the fastest in the world. We are strengthening this network effect further by
introducing FPS payments for merchants and government bills.
24. Or think about why we launched CDI. Data is an essential nutrient to technological
development. Currently, commercial data is scattered across isolated data islands built
bilaterally between banks and individual data providers. The idea of CDI is to provide a
common data infrastructure that will replace these compartmentalised, one-to-one
connections with an ecient many-to-many connection. Banks will have common
access to a sea of data which allows them to compete on innovation in service delivery.
For this to happen, we need scale. We need to connect as many data providers, data
consumers and data owners as possible in order to create the network effect.
25. The same goes with mBridge, the cross-border payment project that recently completed
a number of pilots. For the platform to be sustainable, it is important for as many banks
and their clients as possible to use it. The more the better. It is similarly important to
include as many currencies and jurisdictions as possible. There is a virtuous cycle: the
larger the network, the more the users, which in turn will further expand the network. So
again, "more is more".
Beyond Tech
2. My third reection is that the key to success is "beyond tech". (Not "BioNTech" the
vaccine!) Here I am referring to the need to go well beyond technology to create network
effects.
27. Projects that ll a glaring gap in available services, as was the case with FPS for
example, may achieve quick adoption more easily. But for other projects that seek to
replace current products or practices, adoption could be an issue even if the new
product or experience is far superior to what we have currently.
2. Let me illustrate this using our CDI initiative. The technology to construct this
infrastructure and connect all parties is relatively simple. Creating a conducive
environment to attract all stakeholders to join is far more challenging.
29. The project team spent most time not on technology, but in creating a commercially-
viable arrangement to ensure that there's something for everyone: banks can use data to
manage credit risks; data providers can earn fees; and data owners can borrow more
easily and cheaply. So, the key to success for CDI clearly lies beyond technology. We
need to nd the right commercial incentive for all to benet and create the network
effect.
30. Similarly, for the mBridge project, technical interoperability is key but relatively straight
forward. The platform now has the exibility to allow central banks to easily connect
through CBDCs or traditional payment systems. But that won't attract more jurisdictions
to join by itself. To do that, the platform needs to account for policy and business
challenges. How to build-in different regulatory requirements like anti-money
laundering, how to ensure sucient on-chain foreign exchange liquidity, or how to
develop a shared legal framework are all challenging but necessary tasks. The project
team will focus on these issues, which are well beyond technology, in taking the project
to its next stage.
Closing
31. The HKMA began its ntech journey six years ago. We have come a long way, reached
some important milestones, kept pace with our peers, and are now pressing on into
uncharted territory. But like everyone else, we are still exploring, experimenting and
learning. And as we continue our journey, we will stay radically open-minded, learn from
our failures and keep trying, and go well beyond technology to achieve network effects.
32. As I said at the beginning, Hong Kong will continue on the road of ntech adoption.
Many exciting developments are taking place, and you are bound to see interesting
sights and meet interesting people on the way. So, I invite you to come to Hong Kong,
experience the vibrant ecosystem rsthand, put your most innovative ideas and best
technology here, and take advantage of the many business opportunities. I promise the
journey will be rewarding in many ways.
33. Thank you.
Last revision date : 31 October 2022