In January 2021, the Hong Kong Monetary Authority (HKMA) and Deloitte released a new report on the state of RegTech adoption in the area of AML/CFT compliance for financial institutions in Hong Kong.
This is the latest step in the regulator’s on-going strategy to promote RegTech adoption on a large scale, inaugurated by the first Anti-Money Laundering and Counter-Financing of Terrorism (“AML/CFT”) RegTech Forum in November 2019 – which we had the opportunity to take part in.
The report begins by recognising the catalyst role played by the COVID-19 pandemic for RegTech adoption, and the technology’s ability to keep vital banking services available in rapidly changing circumstances in 2020 and into 2021. In fact, according to Deloitte’s findings, about 90% of all retail banks have either already implemented or plan to implement RegTech solutions to facilitate remote on-boarding for individuals, while there has been strong growth in testing remote onboarding solutions for corporate customers as well.
It is not common for a financial regulator to be sharing such detailed and actionable guidance on this topic, documenting comprehensive hands-on experience from FIs that have successfully completed an AML/CFT RegTech journey to inspire similar initiatives across the sector.
More specifically, among the key insights gained from their experience, banks surveyed by Deloitte tend to emphasise the following:
- The importance of early and continuing stakeholder buy-in;
- The need for interdisciplinary adoption teams with broad perspectives;
- The value of forums to share views and experience; and
- The ability to track and measure success.
While the second section of the report is built around six exemplary case studies, the third section includes highly actionable best practice for financial institutions as they embark on their RegTech adoption journey. Not surprisingly, a key focus is given on third-party vendors’ relationships, suggesting banks to consider the following questions during evaluation:
- Can the vendor demonstrate they truly understand the bank’s unique needs?
- Will the vendor (or their solution) remain valuable beyond an initial PoC? Can they perform at scale?
- Does the vendor’s financial situation allow them to make the best possible decisions from our perspective now and in the foreseeable future?
On the topic of third-party vendors and the perceived risk of relying on them, the report remarks how “the experiences of early adopters thus far show that others have found it possible to find an effective balance between being open to relatively new third-party AML/CFT Regtech vendors and performing due diligence“.
At Know Your Customer, we specialise in providing end-to-end digital onboarding solution to financial institutions around the world. As a company headquartered in Hong Kong, we have a unique understanding of local regulations and banks’ local as well as international requirements for secure, scalable and seamless AML/CFT solutions.