HKMA guidelines restrict virtual playing field to existing lenders
The Hong Kong Monetary Authority (HKMA) has brought emerging virtual banks under its supervision.
In a draft of guidelines given to bankers for comment, the HKMA has outlined the principles it would apply in authorising and monitoring on-line banks.
The HKMA said no guidelines would be implemented before the second half of next year.
The most contentious proposal - and which may be difficult to police - is one that would restrict the virtual banking playing field to existing lenders.
In line with authorisation policies for conventional banking operations, the HKMA in the draft said a locally incorporated virtual bank may be set up only by: Upgrading an existing locally incorporated restricted licence bank or deposit-taking company into a virtual bank, or Converting an existing locally incorporated bank into a virtual bank.
The HKMA also proposed that any locally incorporated on-line bank be 'at least 50 per cent owned by a well-established bank or other supervised financial institution in good standing in the financial community and with appropriate experience'.
It said overseas on-line banks wishing to establish in Hong Kong must come from a country with established e-banking regulations.
In addition, these on-line banks must also be part of a company with assets of more than US$16 billion.
The HKMA warned in the draft that would require evidence from applicants that they had 'substance' and were not simply a concept.
The watchdog body also said it would want to see a detailed business plan and an indication of how the applicant planned to deal with conventional banking issues such as risks involving credit, liquidity and interest rates.
The HKMA pointed out in the draft that security was of 'vital importance to a virtual bank'.
As a result, an applicant would be required to commission a report on the security of its computer hardware, systems, procedures and controls from a qualified and independent expert and make a copy of the report available to the HKMA.
At present, Dah Sing Financial Holdings is the sole contender lining up to create a stand-alone on-line bank.
The company welcomed the draft guidelines.
'The draft comes at an appropriate time,' Dah Sing group financial controller Gary Wang said.
'It definitely will apply to our proposed e-bank, and it provides us with the relevant parameters and factors we can now discuss with the HKMA.'