HKMA Revised Guidelines on Authorisation of Virtual Banks

Ownership

• Both financial and non-financial companies may apply to own and operate a virtual bank in Hong Kong.

• Virtual banks are expected to operate in the form of locally-incorporated banks, in line with HKMA's policy for banks that operate significant retail businesses.

• If the person holding more than 50% of the share capital of the virtual bank is not a bank or a financial institution in good standing and supervised by a recognised authority (in Hong Kong or a comparable jurisdiction), the virtual bank must be held through an intermediate holding company incorporated in Hong Kong. This enables the HKMA to impose supervisory conditions over such intermediate holding company.

Physical presence

• Virtual banks must maintain a physical principal place of business in Hong Kong, but establishing a physical local branch is not mandatory.

Minimum capital requirement
Fees

• The minimum paid-up capital requirement is HK$300 million. The same requirement is applicable to all licensed banks.

• Virtual banks should not impose any minimum balance requirements or low-balance fees on customers.

Ongoing supervision

• Virtual banks will be subject to the same set of supervisory requirements as conventional banks. The HKMA will adopt the risk-based approach as in the case of conventional banks, and will be technology-neutral. By prescribing principle-based requirements, including the Guideline, the HKMA will be able to apply the requirements to virtual banks with regard to the actual operations and technology-driven business model of each virtual bank, and adapt and enhance the existing standards applicable to conventional banks as appropriate.

Record keeping

• Virtual banks must keep a full set of their books, accounts and records, and the HKMA has the right of access for the performance of its supervisory functions, whether the records are kept in Hong Kong or elsewhere.

Technology risk and risk management

• In addition to information security, the HKMA emphasises the importance of system resilience and business continuity management for virtual banks, and virtual banks should ensure that the related controls and measures are "fit for purpose".

• A virtual bank applicant is required to submit an independent assessment report on the adequacy of its planned IT governance and systems as part of its application, and a final report covering an overall evaluation of its information systems before commencing operation.

Business plan

• A virtual bank applicant must be able to present a credible and viable business plan, as opposed to a concept.

• A virtual bank applicant should also demonstrate sustainability in its business model. The HKMA will disapprove any predatory tactics and rapid business expansion, which put undue strains on systems and risk management capability.

Exit plan

• A virtual bank applicant is required to provide an exit plan to address the scenario that its business becomes non-viable. The exit plan should provide for unwinding the business in an orderly manner without causing disruption to customers and the financial system.

• The exit plan should cover matters such as how and when would the plan be triggered, who could trigger the plan and channels to be used to repay depositors and the source of funding for making the payments.