Following a period of consultation, the HKMA has published its conclusions and an updated Guideline on the authorisation of virtual banks.

Some notable points:

  • The HKMA reminds firms that a “key objective” of introducing virtual banks is to promote financial inclusion and so the retail segment should be “primarily” targeted. Virtual banks should not impose any minimum balance requirements or low-balance fees on customers.
  • Virtual banks must operate in the form of a locally incorporated bank i.e. either majority owned by a bank or financial institution, or held through a HK incorporated intermediate holding company subject to requirements on capital adequacy, liquidity, large exposures, intra-group exposures and charges over assets, group structure, activities undertaken, risk management and fitness and propriety of directors and senior management. These are similar to conditions imposed on banks owned by non-financial firms.
  • The HKMA considers it important for virtual banks to be subject to the same set of supervisory requirements as conventional banks.
  • No branches needed, but some physical presence required. A HK office is still required to interface with the HKMA and to deal with customer enquiries/complaints. However, there is no requirement for customers to be identified face-to-face – this will facilitate virtual on-boarding of customers outside HK.
  • Despite some dissenters, the requirement for a virtual bank to have an exit plan is retained and the revised Guideline provides examples of what the plan should cover e.g. when the plan will be triggered, the authority to trigger the plan, the channels used to repay depositors and the source of funding to make payments.
  • Virtual banks will remain subject to the same requirements for capital adequacy as regular banks.

The HKMA has received enquiries / indications of interest from over 50 companies (see press release). 31 August 2018 is the deadline for submitting an application – failing to meet this deadline means that an applicant will be unlikely to be considered by the HKMA in the first batch of application approvals.