Latest HKMA Regtech Watch focuses on AML/CFT measures

In the third edition of Regtech Watch, the HKMA focuses on the potential application of technology in supporting more effective implementation of Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) measures.

Regtech Watch is an ongoing newsletter published by HKMA to promote the adoption of regulatory technology (Regtech) by the banking industry in Hong Kong SAR.

In this June 2020 issue, the HKMA has published its observations of the usage of Regtech in AML/CFT measures. The HKMA’s recently published 2019 Annual Report (see our previous post on the Annual Report) set out that a key area of supervisory focus for the coming year would be the use of Regtech for AML/CFT purposes. 

Use cases for Regtech highlighted in the most recent issue of the newsletter include:

  • Remote account opening: effecting remote on-boarding through mobile application. This can be done via a two-stage identification approach through (i) authenticating the genuineness of the identify document; and (ii) confirming the person holding the identify document is the customer.
  • Transaction monitoring: monitoring large volumes of transactions to identify illicit activities. Regtech solutions using supervised machine learning techniques may be finessed to more accurately identify suspicious activity based on past and common patterns. A particular focus is to reduce the number of false-positive rates to allow AML analysts to focus on genuine higher risk cases.
  • Automation of ML/TF risk management practices: adopting technologies to provide an end-to-end workflow management solution which digitalise, automate and streamline certain ML/TF risk management processes. For example, using Application Programming Interfaces (API) to automatically collect customer information instead of requiring physical collection of customer due diligence information.
  • Network identification: gathering information from the monitoring and investigation of suspicious activities to make reports to the financial intelligence units. This is then disseminated to law enforcement units.

Apart from the above use cases identified, HKMA encourages the banking industry and fintech sector to explore new ways to use technology to make AML/CFT controls more effective and efficient.