Howard Lee: Central bank innovations - payments, data and capabilities Speech by Mr Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, at the BIS Innovation Summit 2021, 23 March 2021. * * *  Introduction 1. Fellow central bankers, distinguished speakers, ladies and gentlemen. It’s my pleasure to speak to you in this important event. While participants of this event generally embrace technology and innovation, I guess that two years ago not many of us could have expected that virtual meetings would become a norm for international conferences. So while technological advances would often drive work process or behavioral changes, there are also times when societal changes spur technological developments or adoption. 2. Of course the COVID-19 pandemic has had a lot more impacts than countless virtual meetings. The unprecedented disruptions and contractions in global trade have literally brought many economies to a standstill. Small and medium sized enterprises (SMEs) are especially hard-hit given the smaller buffers they have. On the other hand, many ecommerce and other online activities are thriving. We are experiencing a much accelerated process of digitalization on many fronts. 3. These new developments call for central banks’ innovations and digital solutions too. In the digital age, central banks will have to become innovators and commit ourselves to digital transformation for the benefit of our economies. In fact, the launch of the BIS Innovation Hub (BISIH) in 2019 is a testament to this commitment.

Through this CDI project, we expect to enhance financial inclusion of SMEs in our 2/3  BIS central bankers' speeches  banking system, and as a result, more efficient financial intermediation. Use of Innovative Technology to Support Supervision 14. Of course, wider adoption of new technologies by financial institutions is in itself presenting considerable challenges to central banks and regulators. The range of technologies deployed by incumbent banks and virtual banks spans different areas – from remote onboarding to funds transfer; and wealth management to regtech, robo-advisory and backend operations, and many more. Seeing early signs of payoff, banks have also invested more heavily in technologies, such as in blockchain and artificial intelligence, to enhance their digital capabilities. 15. As our regulatees become more sophisticated in their technology application, central banks and regulators are also enhancing our supervisory and surveillance capabilities, such as making better use of technology and data analytics; and implementing internal digital transformation to better equip ourselves in the digital era. If we are able to leverage technologies to enhance our vigilance in risk monitoring and management in real time, the resilience and stability of the broader financial system could be improved. 16. We in the HKMA are no different, and are now on a multi-year digitalization journey. This is a huge undertaking, as it involves not only substantial financial investment, but also human resources inputs at all levels. More importantly, if we were to fully reap the benefits of digitalization, many long established processes would have to be changed or even abolished.