Hong Kong rac­ing against time to push ‘game changer’ in bank­ing

China Daily (Hong Kong) - - HK - BY LUO WEITENG in Hong Kong sophia@chi­nadai­lyhk.com

Hong Kong banks are join­ing a clus­ter of their Asian coun­ter­parts in test­ing the dis­rup­tive po­ten­tial of the much-hyped blockchain tech­nol­ogy — the next big thing poised to re­shape the tra­di­tional bank­ing in­dus­try in the near fu­ture.

Bank of China (Hong Kong) has found it­self among the very first batch of lo­cal len­ders to put the tech­nol­ogy into prac­tice.

The city’s largest mort­gage lender, which deals with more than 20,000 ap­praisal re­ports each year, is team­ing up with the SAR govern­ment’s Ap­plied S c i e n c e a n d Te c h n o l o g y Re­search In­sti­tute to roll out a prop­erty val­u­a­tion sys­tem for homes loans based on blockchain tech­nol­ogy.

The sys­tem wrapped up its very first prop­erty val­u­a­tion deal on the day the sys­tem was of­fi­cially launched at the end of last month.

Be­sides the two ma­jor part­ner­ing banks, the sys­tem is look­ing to ex­pand its use with a Chi­nese main­land-based bank and an­other lo­cal lender by Jan­uary at the lat­est, and at­tract a few more prop­erty val­u­a­tion firms, apart from the ex­ist­ing two, to join the game by the first quar­ter of next year, said Rocky Cheng Chung-ngam, gen­eral man­ager of the in­for­ma­tion tech­nol­ogy depart­ment at Bank of China (Hong Kong).

The go-to tech­nol­ogy, de­fined as a de­cen­tral­ized ledger of all trans­ac­tions across a peer-topeer net­work, can be used to im­prove the ef­fi­ciency of pro­cess­ing mort­gages by al­low­ing prop­erty val­u­a­tions to be listed, ver­i­fied and shared with a click of the but­ton through the se­cure de­cen­tral­ized net­work of banks and sur­vey­ors.

Cheng be­lieved that the emer­gence of blockchain tech­nol­ogy could find its roots in the wide­spread use of the in­ter­net. The tech­nol­ogy be­hind bit­coin and other cryp­tocur­ren­cies en­ables buy­ers and sell­ers to in­ter­act di­rectly across the in­ter­net with­out ver­i­fi­ca­tion by a trusted and cen­tral third- party in­ter­me­di­ary.

Blockchain-fo­cused ap­pli­ca­tions go well be­yond the quick prop­erty val­u­a­tions. With many re­gional peers join­ing the fray, Hong Kong is step­ping up its pace to ap­ply the tech­nol­ogy to more ar­eas in a bid to se­cure the “early mover” ad­van­tage.

The next field where blockchain tech­nol­ogy could be ap­plied in­volves trade-fi­nance in­voices. Almost three to four banks in the SAR, in­clud­ing Bank of China (Hong Kong), are cur­rently study­ing an in­dus­try-wide frame­work of trade fi­nance based on such dis­trib­uted-ledger tech­nol­ogy, which is ex­pected to be worked out within the next six months, ac­cord­ing to Cheng.

He noted that blockchain tech­nol­ogy has what it takes to be a “game changer” for the bank­ing busi­ness. Ac­cord­ing to law firm White & Case, the dis­trib­uted-ledger tech­nol­ogy could re­duce banks’ in­fra­struc­ture costs around the world by $15-20 bil­lion a year.

There’s no doubt that len­ders across the globe are em­brac­ing the “game chang­ing” tech­nol­ogy with more con­crete ac­tion.

As a re­cent IBM study showed, a full 15 per­cent of the sur­veyed 200 global banks are geared up to run blockchain so­lu­tions as early as 2017, and see com­mer­cial blockchain so­lu­tions “at scale”.

“Our sur­vey of com­mer­cial and re­tail banks re­veals that the in­dus­try is hurtling to­ward blockchain adop­tion faster than many ex­pected,” said the study.

Like­wise, a re­port by pro­fes­sional ser­vices firm Ac­cen­ture showed that nine out of 10 ma­jor US, Cana­dian and Euro­pean banks to­day are ex­plor­ing the tech­nol­ogy in the area of pay­ments, while 17 per­cent of these ma­jor banks are at “the fore­front of revolution”, mean­ing those so­lu­tions are al­ready in use.

The suc­cess of blockchain tech­nol­ogy de­pends much on uni­form stan­dards to avoid pos­si­ble du­pli­cate con­struc­tion. The more banks go sep­a­rate ways to map out their own net­works, the more dif­fi­cult it would be for the in­dus­try as a whole to reap the tech­nol­ogy’s ben­e­fits, Cheng ob­served.

For the time be­ing, how­ever, it’s no easy task to con­vince the city’s len­ders from dif­fer­ent camps to ac­cept a uni­fied frame­work.

So far, only large in­sti­tu­tions may af­ford to be the early adopters. The point is that the pace­set­ters will have a big­ger say in in­flu­enc­ing and de­ter­min­ing stan­dards and busi­ness prac­tices that fu­ture fol­low­ers may have to abide by, said Cheng.

As the IBM re­port pointed out, the “trail­blaz­ers” are bet­ter able to an­tic­i­pate dis­rup­tion, fend­ing off new com­peti­tors along the way.

To some ex­tent, an in­dus­try­wide frame­work comes from the race among those pi­o­neers to be the stan­dard-set­ter and rule-maker, said Cheng.

As in­no­va­tion al­ways comes with much reg­u­la­tory un­cer­tainty, Bank of China (Hong Kong) has cho­sen to work with the SAR govern­ment from the out­set. Ap­par­ently, de­spite all the hype, the city’s de facto cen­tral bank would like to re­main sober minded about the highly sought-af­ter tech­nol­ogy.

In a white pa­per re­leased last month, the Hong Kong Mone­tary Author­ity (HKMA) high­lighted the money-laun­der­ing risks as­so­ci­ated with blockchain tech­nol­ogy.

Although the reg­u­la­tor rec­og­nized the fact that the tech­nol­ogy al­lows in­for­ma­tion or records to be trans­ferred and up­dated by net­work par­tici- pants in a trust­wor­thy, se­cure and ef­fi­cient way, the white pa­per re­it­er­ated its reser­va­tions about the vague pic­ture of cor­re­spond­ing gov­er­nance, risk man­age­ment and le­gal is­sues.

As the World Fed­er­a­tion of Ex­changes noted in Septem­ber, col­lab­o­ra­tion with the in­dus­try will al­low reg­u­la­tors to bet­ter un­der­stand the tech­nol­ogy, how fu­ture in­fra­struc­ture will look like and what the im­pact will be on fi­nan­cial mar­kets. And, above all, it’s how they could per­form their reg­u­la­tory tasks most ef­fec­tively.

Hong Kong’s fi­nan­cial watch­dog joined a clus­ter of its global coun­ter­parts in Septem­ber to launch the fi­nan­cial tech­nol­ogy su­per­vi­sory sand­box scheme for banks — a use­ful tool widely ex­pected to pro­vide a safe en­vi­ron­ment for busi­nesses to test in­no­va­tive prod­ucts, while pro­vid­ing ap­pro­pri­ate safe­guards to con­tain the con­se­quences of fail­ure for cus­tomers.

Although the HKMA be­lieved it’s still “pre­ma­ture” to draw any con­clu­sion from blockchain tech­nol­ogy, the sand­box scheme marks a ma­jor push for col­lab­o­ra­tion and ex­change of in­for­ma­tion be­tween the bank­ing in­dus­try and the reg­u­la­tor.

As Hong Kong bets big to sharpen its edge as the worl­drenowned fi­nan­cial cen­ter by dou­bling up its ef­forts to make the promis­ing fi­nan­cial tech­nol­ogy a suc­cess, Cheng said it’s re­ally a race against time and other ma­jor fi­nan­cial hubs.

And, blockchain tech­nol­ogy is prob­a­bly one of the fields where Hong Kong could look at to take the lead.

The emer­gence of blockchain tech­nol­ogy could find its roots in the wide­spread use of the in­ter­net.” Blockchain tech­nol­ogy has what it takes to be a ‘game changer’ for the bank­ing busi­ness.”

PRO­VIDED TO CHINA DAILY

Blockchain tech­nol­ogy is ex­pected to flour­ish in Hong Kong’s bank­ing in­dus­try, which is set to be the next big thing in re­shap­ing the tra­di­tional bank­ing in­dus­try in the near fu­ture.

Rocky Cheng Chung-ngam, gen­eral man­ager of the in­for­ma­tion tech­nol­ogy depart­ment at Bank of China (Hong Kong)

Rocky Cheng Chung-ngam, gen­eral man­ager of the in­for­ma­tion tech­nol­ogy depart­ment at Bank of China (Hong Kong)

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