HKMA to launch regulatory sandbox for GenAI solutions in banks this year

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The Hong Kong Monetary Authority is launching a regulatory sandbox for generative AI this year to allow banks to deploy solutions in a controlled environment

During his opening speech at The Asian Banker Summit 2024 in Hong Kong on 23 May, Arthur Yuen, HKMA deputy chief executive, said a sandbox planned for launch later this year will help the regulator set rules for banks that use GenAI.

He stated: “We at the HKMA use a technology-neutral way of supervising innovation. It means we need to accept that sometimes bad things happen and supervisory response needs to be very measured when deployment of technology doesn’t really happen in a way that is originally envisaged.

“In that sandbox, we look into promoting both the technical and regulatory aspect of things. Within a more controlled environment, the banks don’t have to worry too much that we will bring out the sledgehammer at the first sign of trouble.”

The HKMA has used regulatory sandboxes before to test technologies like tokenisation and stablecoins, allowing banks to graduate if they demonstrate risk containment.

Yuen recognised that AI can change how banks make decisions and engage customers. Besides the sandbox, HKMA is conducting a skills mapping exercise on AI’s impact, working with major banks to identify roles AI could replace, and what “forward-looking skills” are needed. Initial findings show huge gaps in data and green finance roles.

He said: "We don’t want to see five years later that 30% of the bankers will lose their jobs with nothing to turn to. We need to start the upskilling and retooling efforts early on.”

The Asian Banker's founder Emmanuel Daniel noted that the summit was happening amid “great change in Hong Kong’s financial architecture and technologies shaping the industry”.

Daniel Drew, alternate chairperson of The Hong Kong Association of Banks, highlighted resilience through fighting fraud as banks innovate, stating: “We see our role as connectors between Hong Kong, Mainland China and the world. For our association, collaboration is key.”

Meanwhile, Lord Chris Holmes (Lord Holmes), a UK House of Lords member and former Science and Technology Committee member, emphasised balancing innovation and resilience as decentralised finance grows. He said: “Things have never moved as fast in finance as today. What we need now is to bridge innovation and resilience through business and regulators working together.”

The Asian Banker Summit, marking its 25th year, examined the intersection of technology, finance and resilience amid rapid industry changes. Speakers concurred that Hong Kong’s banking resilience is predicated on anti-fraud collaboration, and balancing innovation with resilience as decentralised finance gathers momentum.

Keywords: Regulatory Sandbox, Generative Artificial Intelligence, Technology-neutral Supervision, Risk Containment, Tokenisation, Stablecoins, Skills Mapping Exercise, Upskilling And Retooling Efforts, Decentralised Finance, Anti-fraud Collaboration, Banking Resilience

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