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. for the coming year, bisih have announced 6 thematic priorities for driving innovations and staying ahead of the digital challenges. responding to new developments in the payments landscape 4. no doubt payment has been a key area for innovations in recent years. traditional payment systems have undergone transformation, not least with the introduction of fast payment systems. and new payment methods have emerged in the private sector. consumers are increasingly reliant on digital payments that offer better speed and convenience. however, when new forms of digital payment are increasingly used by the public, or even become the dominant means of payment in society, central banks would rightly be concerned about the resilience of the payment landscape, as disruptions could cause not just inconvenience, but also potentially significant economic damage. 5. at the same time, cryptocurrencies and stablecoins have emerged as a new class of assets that are sometimes claimed to be also a medium of exchange despite their volatility and concerns about their security. widespread adoption of these digital currencies by

to smes. 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. as the existing procedures are usually based on dated legacy systems and manual processes, appropriate use of innovative technologies such as artificial intelligence, cloud platforms and apis can surely help refine supervisory processes. 17. for example, our granular data reporting ( gdr ) which started in 2019 seeks to collect transactional level data from banks, instead of template based aggregate data in the past. this has enabled us to discover insights and trends in a timely manner and conduct advanced analyses through slicing and dicing the data collected. but this is only possible with very fundamental changes in the way we analyse the risks of banks, with new people, new organizational structure, new it systems as well as continued experimentation by colleagues with different skills and expertise. 18. one thing we have learnt is that the prerequisite for such a digitalization journey is to have strong commitment by all colleagues from top to bottom, and for everyone to