Guideline on Authorization of Virtual Banks


Hong Kong (HKSAR) - The following is issued on behalf of the Hong Kong Monetary Authority:

     The Hong Kong Monetary Authority (HKMA) published today (February 6) a revised Guideline on Authorization of Virtual Banks for public consultation.

     As part of the package of initiatives announced in September 2017 to bring Hong Kong into a New Era of Smart Banking, the HKMA will facilitate the establishment of virtual banks in Hong Kong and will carry out a review of the Guideline on Authorization of Virtual Banks first issued in 2000.

     The HKMA welcomes the establishment of virtual banks in Hong Kong.  It believes that the development of virtual banks will promote fintech and innovation in Hong Kong and offer a new kind of customer experience.  In addition, virtual banks can help promote financial inclusion as they normally target the retail segment, including the small and medium-sized enterprises (SMEs).

     The Guideline on Authorization of Virtual Banks sets out the principles which the HKMA will take into account in deciding whether to authorise virtual banks to conduct banking business in Hong Kong.  As defined in the revised guideline, a "virtual bank" refers to a bank which delivers retail banking services primarily, if not entirely, through the internet or other forms of electronic channels instead of physical branches.

     The HKMA considers that the basic principles contained in the guideline issued in 2000 remain applicable.  These include those relating to the requirement on a virtual bank to present a concrete and credible business plan, the importance of properly managing the risks associated with virtual banking, the requirement to treat customers fairly, and the need to maintain adequate capital commensurate with the nature and scale of operation of the virtual bank.

     Some updates or refinements are nonetheless necessary having regard to the present day circumstances.  These include:
(i)Banks, financial institutions and technology companies may apply to own and operate a virtual bank in Hong Kong;
(ii)Virtual banks should play an active role in promoting financial inclusion in delivering their banking services.  While virtual banks do not maintain physical branches, they may set up customer service centres.  Virtual banks should take care of the needs of their target customers, be they individuals or SMEs.  They should not impose any minimum account balance requirement or low-balance fees on their customers;
(iii)Since virtual banks will engage primarily in retail businesses, they should operate in the form of a locally-incorporated bank. This is in line with the arrangement for banks engaged in retail businesses;
(iv)Virtual banks will be subject to the same set of supervisory principles and key requirements applicable to conventional banks, although some of the requirements will need to be appropriately adapted to suit the business models of virtual banks; and
(v)As virtual banking is a new business model in Hong Kong, virtual banks should provide an exit plan at the time of application, so that they can unwind their businesses in an orderly manner should it become necessary.

     The public consultation commences today and will last until March 15, 2018.  The HKMA will take into account the comments received during the consultation and issue a revised guideline in May 2018.

     Companies intending to apply for a virtual banking licence may submit an application to the HKMA now.  While the revised guideline is still under consultation, the HKMA encourages applicants to review the revised guideline and make preparations for submitting an application.

 The HKMA has set up a dedicated team (email address: vbapplication@hkma.gov.hk) to answer enquiries of applicants and provide assistance during the application process.  In evaluating the applications received, the HKMA will give due regard to the extent to which the authorization of the applicant will promote fintech and innovation, new customer experience and financial inclusion in Hong Kong.



Published on: 2018-02-06

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