The HKMA has issued three virtual banking licenses as part of its broader initiatives to develop the local banking industry.

By Simon Hawkins and Kenneth Hui

The Hong Kong Monetary Authority (HKMA) recently announced the issuance of the first virtual banking licenses to three entities.

Virtual banks in Hong Kong are banks that primarily deliver retail banking services through the internet or other electronic channels, instead of through physical branches.

The HKMA previously issued a press release on 7 December 2018 announcing that there had been around 30 virtual banking applications as of the end of August 2018, and the HKMA had shortlisted a third of the applications for the next stage of assessment.

On 27 March 2019, the HKMA announced that it had granted the first virtual banking licenses to:

  • Livi VB Limited — reportedly a joint venture between Bank of China (Hong Kong) Limited, Beijing Jingdong Financial Technology Holdings, and Jardine Matheson Holdings
  • SC Digital Solutions Limited — reportedly a joint venture between Standard Chartered, Hong Kong Telecom, PCCW, and Ctrip Finance (Chinese travel service provider International’s FinTech unit)
  • ZhongAn Virtual Finance Limited — reportedly a joint venture between Zhong An Online P&C Insurance Co. Ltd. and SinoLink Group

The newly licensed virtual banks intend to launch their services within six to nine months.

The HKMA has also indicated that it is currently processing another five virtual bank applications, and our expectation is that further virtual bank license approvals will likely be forthcoming in April.

Virtual banks are subject to more lenient regulatory authorization criteria than traditional “bricks and mortar” banks. One notable feature of the new regime is that virtual banks are not required to be majority-owned by a regulated financial institution, meaning that non-financial institution companies (e.g., technology and e-commerce companies) can become majority shareholders of virtual banks. In contrast, the HKMA requires traditional banks to be majority-owned by a bank or other type of regulated financial institution. By opening up the Hong Kong banking market to non-financial institution players, the HKMA aims to promote FinTech and innovation in the local banking industry, while also offering new customer experiences in the retail market.

The HKMA is promoting virtual banking as part of a broader agenda to develop Hong Kong’s banking industry through its Smart Banking initiatives, which were originally announced in September 2017. Such initiatives also include the introduction of a faster payment system (FPS), an Open Application Programming Interface (API) framework for the banking sector, and an enhanced FinTech supervisory sandbox.