Preparing For Opportunities In The Hong Kong’s Financial Landscape
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The Covid-19 pandemic had shattered many plans and dampened the spirits of businesses since it hit the world in 2020. Although Covid-19 remains on the agenda, we are starting to see the bleak side of recovery in the economy, as well as the possibility of embracing innovation and transforming the financial services sector.
According to a report published by the Schroders Investment Management (Hong Kong) last September, it shows Hong Kong investors expect a return on investments of more than 11 percent every year. Last August, the Financial Services Development Council (FSDC) released a survey of 200 industry practitioners evaluating Hong Kong’s future financial services industry. The study findings show that 58 percent of the respondents are optimistic about Hong Kong’s financial services industry. The reasons for this optimism are apparent – the outbreak of the Covid-19 pandemic, the trend of digitalization, geopolitical uncertainty, and changing consumer perceptions are causing financial institutions to rethink their business models and priorities, which are important indicators of change for financial institutions in Hong Kong to explore on innovations to transform and grow in business.
So, what are the opportunities available for Hong Kong financial institutions?
Well-Positioned In The Greater Bay Area
The Greater Bay Area (GBA) is an important China market-oriented reform project of opening up to regional and international markets. The GBA infrastructure provides opportunities for Hong Kong to tap into a larger market with a population of more than 70 million and a gross domestic product (GDP) growth of roughly 8 percent per year over the past decade. According to the joint opinions published by the Chinese and Hong Kong governments in May 2020, both governments support the GBA, which aims to facilitate cross-border financial services, facilitate the opening of Chinese financial markets, facilitate the development of financial infrastructure between two borders, and promote financial services innovation. Moreover, due to rising economic activity and an increasingly affluent population, the GBA market is attractive to wealth managers, insurance companies, and lenders. Hong Kong has, no doubt, secured a favorable geography landscape to capitalize on the GBA’s potential.
Growing Wealth And Securities Finance
On 10 September 2021, Greater Bay Area Wealth Management Connect (GBA WC) was launched. The GBA Wealth Connect allows mainland Chinese retail investors to access investment products, including mutual funds, offered by banks in Hong Kong and Macau and vice versa. A majority of banks are optimistic about the new initiative and predict that it could attract one million millionaires, which is approximately equivalent to 480,000 high-net-worth individuals, who, in general, are defined as people with wealth exceeding a million dollars. This presents a lucrative business opportunity for Hong Kong financial institutions. By the end of last September, the Hong Kong Monetary Authority (HKMA) had already received 20 banks seeking approval to offer more than 100 different types of investment funds to Chinese investors through the US$46.5 billion Wealth Management Connect scheme. Banks receiving the support of the scheme must demonstrate to HKMA that they are fully prepared in terms of their systems, products, and human resources.
Strategic Role In The Multi-CBDC Bridge Network
As a part of the GBA’s initiatives to further develop financial infrastructure between Hong Kong and mainland China, the HKMA and People’s Bank of China have been studying ways to establish multi-currency cross-border payment arrangementsto promote both payment efficiency and safety between the two borders. Both authorities deemed a settlement channel that supported both payment systems will be of great benefit to the regions, particularly between Hong Kong and mainland China due to closer economic and financial ties.
Since China is gearing up to launch its digital yuan internationally and setting up an m-CBDC bridge network with several central banks in support of multi-currency cross-border payments, Hong Kong can play a strategic role by advocating that relatively mature wholesale CBDCs that have close economic ties with Hong Kong, such as Japan, Singapore, and Switzerland, join the m-CBDC Bridge. In this regard, Hong Kong is well-positioned to become a hub for regional and global central bank digital currencies under the m-CBDC bridge.
As a result, Hong Kong’s financial institutions have been called on to develop integrated omnichannel platforms to handle multi-currency, cross-border transactions, and manage multiple entities.
Virtual Banks Seeing New Frontiers
Virtual banks are setting new frontiers in the field of wealth management. Like traditional banks, virtual banks could venture into the lucrative market, targeting the younger group and the mass markets. The features that distinguish virtual banks from traditional banks include enhanced customer experience, easy access to wealth products, ease of interaction, client servicing, trading, and account management services. In addition, virtual banks may want to explore insurance and collateral management as ways to harness the value of their end-to-end digital solution native nature. It would be equally beneficial if they invested in technologies that would overlay the existing systems without disrupting the daily ongoing operations.
Checklist For 2025
As these opportunities open up for the Hong Kong financial sector in the future, are Hong Kong financial institutions prepared to embrace these opportunities with long-term success in mind?
At the HKIB Annual Banking Conference last September, the HKMA speaker reaffirmed the “Fintech 2025 Strategy” and encouraged all financial institutions to think ahead and develop initiatives that will foster long-term success. This new strategy aims to drive fintech development of Hong Kong in areas including fintech adoption by all financial institutions in the year 2025, increasing Hong Kong’s readiness in CBDCs to provide convenient cross-border payments for mainland and domestic residents, and creating the next-generation data infrastructure. And to start with, financial institutions need to understand their needs carefully, develop a strategic plan to target long-term gains, adopting the right fintech solution to implement the plan while minimizing risks and disruptions in the process.
Technology Helps In Navigating Disruptions
For the best future-proof technologies, innovations should emphasize digitization workflows, channel straight-through-processing (STI) to serve diversified, cross-border multi-currency transactions, streamline back-office functions, and seamlessly integrate with existing information systems while keeping up with all regulatory revolutions, such as managing data granularity, completeness and accuracy.
Additionally, future-proof technologies are designed for agility in helping financial institutions extend traditional financial services to meet the demands of new market spectrums such as managing crypto assets like any other blockchain provider; as well as the vice versa, supporting non-bank financial institutions to manage compliance reporting, collateral management, asset servicing, etc.
In the end, the success of financial institutions hinges on customer satisfaction and loyalty. Technology solutions that were developed with the end-users needs and experience in mind, simplify processes, lower complexity, and minimize investment costs for a company.
Disruption will be part of the new normal that we are moving to. In the present and the future, this is the reality in the financial services ecosystems, so financial institutions that leverage their innovation capacity, technology, and reach to deliver the scale and pace needed to accomplish enterprise goals will outperform their competitors.
At VERMEG, we offer customer-centric, digital solutions that help our financial services customers take advantage of the growth opportunities in the Hong Kong market through digital innovation in Regulatory Reporting, Securities Services, Collateral Management, and Wealth Management, etc. To find out more, please contact email@example.com
Vanessa Yu, Director, Greater China
Vanessa supports financial institutions in the Greater China region in digital transformation for regulatory reporting, collateral management, securities services, asset, and wealth management. She believes in an in-depth understanding of the requirements and generating a robust solution to meet her stakeholder’s business goals.