Hong Kong Central Bank Vows To ’Turn The Tables’ On Financial Crime

July 25, 2023
The Hong Kong Monetary Authority has launched a new bank-to-bank information sharing platform as it hopes to lead by example in a collaborative approach to fighting fraud and financial crime.

The Hong Kong Monetary Authority (HKMA) has launched a new bank-to-bank information sharing platform as it hopes to lead by example in a collaborative approach to fighting fraud and financial crime.

Speaking in Singapore at the Fraud and Financial Crime Summit, the HKMA’s Carmen Chu drew attention to the launch of the Financial Intelligence Evaluation Sharing Tool (FINEST).

Chu, who is the executive director of enforcement and anti-money laundering (AML) at the HKMA, said the FINEST platform will set an example for other jurisdictions in how banks, central banks and police can collaborate to tackle fraud and money mule activity.

Launched last month, FINEST is an initiative developed by the Hong Kong Association of Banks, with guidance from the HKMA and support from the Hong Kong Police Force (HKPF).

It offers a secure platform that can accelerate bank-to-bank sharing of information, and is one of five “anti-deception” initiatives announced by the HKMA and HKPF in 2023.

“Enhancing the ability to share information directly among banks is internationally recognised as an effective means to help manage and mitigate increasingly sophisticated fraud and money laundering risks,” said the HKMA.

FINEST will be rolled out in phases, with its first pilot phase focused on five domestic systemically important banks, including the Bank of China, HSBC and Standard Chartered.

The pilot will allow these banks to share information related to corporate entities suspected of fraud-related money laundering activities.

If successful, the pilot phase will then be expanded to include more participating banks and will cover personal accounts and other financial crime areas, such as trade-based money laundering.

Eddie Yue, chief executive of the HKMA, also said the FINEST platform could help “turn the tables” on fraud and financial crime in Hong Kong.

“Bank-to-bank information sharing, when combined with data analytics, can be a game changer in the fight against abuse of our banking system for fraud,” he said.

Next year, as covered by VIXIO, Singapore will launch a similar information-sharing platform known as COSMIC, short for the Collaborative Sharing of ML/TF Information & Cases.

As per the bill authorising the launch of the platform, COSMIC aims to break down “information silos” that currently prevent financial institutions from sharing certain forms of customer data due to data protection rules.

In its statement announcing the launch of FINEST, the HKMA said it is engaged in regular discussions with other regulators that will lead to “consistent approaches” to fraud and financial crime as successful initiatives bear fruit.

‘Whole-system’ approach needed, says Chu

For the time being, however, Chu admitted that Hong Kong has been unable to turn back the tide of rising fraud and financial crime seen throughout the world following COVID-19.

So far in 2023, for example, Chu said the HKMA has received more fraud-related banking complaints than in the whole of 2022 (637 v 555 respectively).

As combating fraud and financial crime takes priority for the HKMA in 2023, Chu said that pursuing data-driven and technology-focused initiatives will be part of a wider “whole-system” strategy.

Regulators will “drive the agenda”, she said, but banks are expected to lead in terms of practical implementation.

“The banking sector not only acts as gatekeeper but also provides the majority of data and intelligence on which the success of our mission depends,” she said.

“As the banking regulator, we have been challenging ourselves: how can we be more dynamic and creative, and how should we adapt our own supervision to encourage and enable banks in adapting their front-line controls in a way that collectively improves outcomes?”

Chu said the HKMA has “transformed” its supervisory approach to the collection, storage and analysis of data, and has shifted its focus to gathering the most “complete, accurate and timely data”.

This allows the HKMA to analyse threats and track the results of its interventions more effectively.

“We call this our AML surveillance enhancement programme,” said Chu, “It’s a long-term commitment to and investment in data and technology, as well as supporting capabilities and culture.

“The objectives are to better understand and target higher risks in banks, and to create such supervisory and data and analytics environment that supports larger data sets and uses technologies to perform enhanced risk profiling.”

Regtech solutions growing

Since 2019, the HKMA has also been engaging with banks to encourage greater adoption of regtech solutions.

This includes the AML Regtech Labs, a HKMA series that allows groups of banks to target common pain points, identify relevant regtech solutions and work with technology and data experts in a sandbox setting.

Chu said the HKMA’s efforts have led to about 60 percent of retail banks in Hong Kong taking up use of network analytics solutions, which is more than twice as many as three years ago.

In 2022, this contributed to a 320 percent increase in intelligence-led suspicious transactions reports compared with the previous year, and a 110 percent increase in criminal proceeds restrained or confiscated.

“The important point to take away is that this roadmap supports a stronger collective response which can tackle changes in threats based on a stronger risk understanding and evidence base,” said Chu.

“And this is where the leadership from the public sector is so important, driving all stakeholders to work more closely together, sharing more data, more information and more know-how.”

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