December 17, 2024
By Anjali Kochhar
Hong Kong has taken a significant step towards reconciling the promise of artificial intelligence (AI) with strong governance by announcing a dual-track regulatory system for its financial sector. This strategy emphasises the city’s aim to be a global leader in fintech innovation while mitigating possible dangers such as data misuse, employment displacement, and algorithmic bias. Hong Kong sets a high standard for prudent AI integration in banking by implementing this dual-track architecture.
The dual-track system is entered around principle-based guidelines and a compliance-oriented supervisory framework. The principle-based guidelines focus on ethical AI development, emphasising transparency, fairness, and accountability. The supervisory framework ensures that financial institutions adhere to these standards, addressing risks such as privacy concerns and intellectual property issues. Hong Kong’s Financial Services and the Treasury Bureau (FSTB) is leading this initiative.
Dr. Joseph Chan, Under Secretary for Financial Services, stated, “AI presents tremendous opportunities to revolutionise the financial sector, but this innovation must be balanced with robust governance. Our dual-track approach allows for the responsible growth of AI technologies while safeguarding the rights and interests of all stakeholders.”
Financial institutions in Hong Kong have increasingly adopted AI technologies to streamline operations. AI systems are used for fraud detection, customer service automation, and risk management. These innovations have not only boosted operational efficiency but also advanced sustainability goals, especially in green finance initiatives. However, as AI reshapes the financial landscape, the need for stringent oversight has become more apparent.
The framework also seeks to address pressing issues like job displacement and bias in AI algorithms. To mitigate these risks, the FSTB plans to introduce education programs for upskilling workers and encourage research and development to refine AI applications in finance. Additionally, the policy underscores the importance of public trust in AI-driven systems, aiming to ensure transparency and equitable outcomes for all stakeholders.
In parallel with AI regulations, Hong Kong’s Securities and Futures Commission (SFC) is preparing to tighten rules for cryptocurrency markets, particularly over-the-counter (OTC) trading. By November 2024, the SFC will implement a licensing framework for OTC platforms, ensuring transparency and accountability in crypto transactions. This move complements the broader push to create a secure and innovative financial ecosystem.
Dr. Karen Ho, an AI ethics expert, praised the initiative, stating, “Hong Kong’s dual-track framework sets a benchmark for balancing innovation and regulation. However, continuous adaptation and global cooperation will be essential to keep pace with AI’s rapid evolution.”
The SFC, in collaboration with the Customs and Excise Department (C&ED), aims to combat fraud and money laundering in digital asset trading. This proactive approach positions Hong Kong as a leader in responsible crypto innovation, further solidifying its reputation as a global financial hub.
Hong Kong’s dual-track regulatory approach underscores its commitment to blending technological innovation with ethical governance. By fostering AI advancements and strengthening cryptocurrency regulations, the city aims to create a sustainable, secure, and competitive financial landscape. These initiatives demonstrate that it is possible to embrace disruptive technologies without compromising public trust or safety.
About the author
Anjali Kochhar covers cryptocurrency and blockchain stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
