HKMA To Receive Virtual Bank License Applications

May 31, 2018

NewsStandOnline.Net (31-May-2018): Following the completion of a public consultation, the Hong Kong Monetary Authority (HKMA) last night published a revised “Guideline on Authorization of Virtual Banks”, saying it expects to receive applications for virtual bank licenses by August 31.

Over 50 companies from across the world have expressed interest, according to Hong Kong’s de facto central bank. Some are traditional banks while others are pure technology companies, according to HKMA.  As defined in the revised guideline, a “virtual bank” refers to a bank which delivers retail banking services primarily, if not entirely, through the internet or other forms of electronic channels instead of physical branches.

While it is unclear how many of these companies will eventually put in applications, Norman Chan, chief executive of HKMA, said interested parties are beginning to submit applications to the HKMA.  Those who want to be among the first batch of applicants will have to submit the formal application by the end of August.

“We will evaluate the applications carefully and expeditiously, applying the principles set out in the revised Guideline,” said Chan, “We hope to be in a position to start granting licenses to virtual banks towards the end of this year or in the first quarter of next year.”

According to HKMA deputy chief executive Arthur Yuen Kwok-hang, some of the 50 companies have already submitted initial business plans.

Most of the submitted business plans involved the offer of virtual banking services connected with “social media platforms and chatbots,” rather than the pure website platform. And some conventional banks had expressed interest in the application as well, said Yuen.

HKMA To Receive Virtual Bank License Applications

Online lending firm WeLab, one of Hong Kong’s unicorn startups said that it is preparing to be among the first batch of applicants for a virtual banking license.  The revised guideline offers a clearer guidance on the expectations on operational and risk management for a virtual bank in the city, it said.

Regulations for the virtual bank license are not much different in the revised guideline compared with that before the consultation kicked off in February. But in the announcement, HKMA has provided explanations in response to specific comments received during the consultation.

According to the revised guideline, virtual bank applicants will need to comply with the minimum paid-up capital requirement of HK$300 million and cannot impose minimum balance requirements or low-balance fees on customers.

The virtual banks cannot charge excessively high interest rates or engage in over-aggressive strategies to compete for market share. And, virtual bank applicants are required to produce an exit plan. Yuen said the virtual banks are expected to provide banking services like deposits and lending for individuals and SMEs.

Referring to one of the major controversy points, HKMA acknowledged that several respondents requested HKMA to lower the minimum paid-up capital barrier.

Yet, the agency said the HK$300 million capital requirement is stipulated in the Banking Ordinance and is applicable to all licensed banks. “It is neither possible nor appropriate to lower the minimum capital requirement for virtual bank licensees,” it said.  Besides, a few respondents did not support requiring virtual bank applicants to produce an exit plan, on the ground that no similar requirement applied to conventional bank applicants.

But HKMA said that considering that virtual banking is a new business model in the city, it is prudent to require virtual bank applicants to develop an exit plan.  That will ensure that a virtual bank can unwind its business operations in an orderly manner without causing disruption to the customers and the financial system.  The HKMA pointed out that supervisory authorities in Europe and Australia also introduced similar requirements.