eddie yue : opportunities and challenges of emerging technologies in the financial ecosystem welcoming remarks by mr eddie yue, chief executive of the hong kong monetary authority, at the hkma - bank for international settlements ( bis ) joint conference " opportunities and challenges of emerging technologies in the financial ecosystem ", hong kong, 31 october 2024. * * * distinguished guests, ladies and gentlemen, good morning! it is a great pleasure to welcome you all to this conference, organised jointly by the bis and the hkma. in particular, a big welcome to those who have travelled all the way to hong kong for this event. this year, we are especially honoured to have the global association of risk professionals as our supporting organisation. when the conference was first held in march last year, the banking crisis in the us and europe was just unfolding. and these incidents raised concerns about banks'risk management in a rapidly tightening interest rate environment. they also reminded us how technology that is meant to provide convenience to customers could also bring challenges to banks. when digital banking enables depositors to withdraw millions of dollars with a single click, banks and regulators are often left with little time to react. now, a year and a half later, the role of technology has only become more important. technological advancements are reshaping our world at an astonishing pace. among a wide array of cutting - edge technologies, artificial intelligence ( ai ) has drawn immense attention from the industry given its great potential to transform the financial system. as a regulator, our instinct is to be prudent ; however, as a facilitator, we are mindful that rapid advances in technologies can open up new opportunities for the financial industry. the key question is – how can we facilitate the industry to adopt novel technologies while at the same time managing new risks to the financial system brought by these changes? are we fully prepared for these challenges? these are the very themes we will be discussing in today's conference. let me spend a few minutes to share with you the hkma's philosophy and approach towards the adoption of ai, especially generative ai ( genai ), in financial services. i will also share some insights on where and how the banks should stay alert. nowadays, banks are deploying ai in many different areas to enhance operational efficiency and improve customer experience. we have seen ai applications in customerfacing functions, such as remote account onboarding and customer chatbots. we have also seen the use of ai in middle and back

risks that could threaten the broader financial system at an early stage, so we can develop and implement targeted safeguards in a timely manner. currently, there are four key areas related to ai applications that are closely monitored by the international regulatory community, and we urge the banking industry to pay particularly close attention to them. first, operational risk, or more specifically, concentration risk of third - party service providers. at the heart of ai are substantial computational power and large datasets. but these can only be handled by big tech firms that provide ai systems and related cloud services. if any of these few service providers suffer from it failures or cyberattacks, the outcome could be catastrophic. the operations of many financial institutions relying on their services would be severely affected. this increasing dependence on a concentrated group of ai service providers is a cause for concern. to strengthen the operational resilience of banks, we have required banks to conduct holistic risk assessment of ai service providers. banks should also establish robust 2 / 4 bis - central bankers'speeches business contingency plans to address potential disruptions to the services provided by third parties. fraud is the second area of concern. there is a saying : " in a doctor's hand, a knife is a tool for healing ; but in a thief's hand, it becomes a weapon for harm. " the content generation capabilities of genai has been exploited by malicious actors to create new forms of fraud. there have been cases where genai was used to produce deepfake videos that look real, to trick people into sharing personal information or making financial decisions. i have even found myself in a fake media interview promoting an investment scheme! even more concerning is the potential misuse of deepfakes to spread false rumours and trigger public panic, especially during times of market stress when public confidence is already weak. as the capabilities of genai continue to advance, there is a pressing need for all stakeholders in the financial system to work together to detect and combat the misuse of genai. it is equally important to raise public awareness and vigilance through education. thirdly, the customer protection angle should not be overlooked. ai is widely used in customer - facing activities. yet, the decision - making process in some ai models is like a black box. they may produce incorrect outputs that appear credible. they may also produce biased results that unfairly favour or disadvantage certain groups or individuals. the even more complex models for genai may amplify these