(7 February 2018 – Hong Kong) In a draft set of guidelines released by the Hong Kong Monetary Authority (HKMA), virtual banks looking to set up in Hong Kong will need to have at least HK$300 million (A$49.3 million) in capital, and cannot impose a minimum account balance or low balance fees.
Feedback on these guidelines will be open until March 15, with the HKMA issuing the final regulations will in May. Non-financial and traditional banks can apply for the licences now.
“Overseas experience has shown some successful virtual bank operations, while small and medium enterprises could get better banking services and lending,” Arthur Yuen, the deputy chief executive of the authority, said during a media briefing on Tuesday.
“We expect virtual banks will focus on retail and SME businesses, but we will not require what type of services they must offer to customers. They could choose their business scope, ranging from payments, deposits and loans, to wealth management and other lending,” said Yuen.
Virtual banks will be required to set up a locally incorporated bank to offer retail banking, the same regulations imposed on conventional banks providing retail services.
“While the HKMA will not interfere with commercial decisions, we will, however, ban these virtual banks from carrying out any predatory tactics, such as extremely low prices or excessively high interest rates to aggressively compete for market share, as this would be detrimental to the stability of the banking sector, and affect the confidence of the general public,” he added.
Although the virtual banks will only operate online and will not have a physical network, the HKMA will require them to have at least one physical office that can also handle complaints from customers.
Operators will need to have an exit plan in case of a collapse, and all virtual banks will need to join the deposit protection scheme, which offers depositors compensation of up to HK$500,000.
Yuen added that the HK$300 million capital requirement was the same as that for conventional banks, while the no minimum balance requirement was aimed at protecting small investors.
Although the HKMA expected to issue the first licence by this year, virtual banks would be able to operate by this year end.
“While the HKMA will not interfere with commercial decisions, we will, however, ban these virtual banks from carrying out any predatory tactics,” Yuen said.
Up to 10 companies have already expresses interest in opening up virtual banks including technology firms without a banking arm as well as traditional banks that want to set up virtual bank units, the authority chief executive Norman Chan Tak-lam told lawmakers during a Financial Affairs Panel.