With financial crimes involving banks on the rise, Hong Kong is relying on technology applications to nip scammers in the bud and protect the public. Liu Yifan reports from Hong Kong.

Hong Kong financial experts have thrown their weight behind the special administrative region’s stepped-up efforts to fight rampant fraud in the sector, suggesting enforcing various measures to beef up security and protect the public’s interests.

Their battle cry is for financial services providers to accelerate technological applications, such as data management, artificial intelligence, and decentralized blockchain, to put fraudsters to rout.

Secretary for Security Chris Tang Ping-keung has painted a bleak picture of the situation, with the number of deception cases having gone up by 52.2 percent in the first eight months of this year, accounting for more than 40 percent of the overall crime rate, and aggravating a daunting trend that in 2022 had already seen a surge in fraud cases.  

Bank deception cases are on the rise. The Hong Kong Monetary Authority — the city’s de facto central bank — has logged 954 complaints about such cases so far this year, nearly double the figure for 2022.

The financial services watchdog has said it will prioritize efforts to combat financial crime by sharing information, monitoring transactions, and alerting customers. It has also advised 28 local retail banks to deploy sufficient resources and expertise to ensure fast implementation of collaborative measures to fight fraud in the three main areas. 

In June this year, the SAR authorities launched a bank-to-bank information-sharing platform, with Bank of China (Hong Kong), Standard Chartered (Hong Kong), HSBC, Hang Seng Bank and ICBC (Asia) among the first batch of lenders to join in. The platform focuses primarily on corporate account information on suspected money laundering activities linked to fraud. 

The plan calls for proposed legislative amendments this year to expand interbank information sharing to personal accounts after consulting the industry and the public.  

In monitoring transactions, all 28 retail banks in Hong Kong are required to implement real-time fraud monitoring. When a customer makes a bank transaction transfer, the real-time monitoring system will issue a risk alert and track the move to determine whether the recipient account is identified as suspicious by law enforcement authorities or the bank. The lender involved would then inform the customer about the risk of the transaction and the client would decide whether or not to proceed with it. 

Additional anti-fraud alerts will be added to the Faster Payment System (FPS), which allows users to transfer money by proxy identification, such as providing a mobile phone number or email address, to others. The system processed an average of HK$9.9 billion ($1.26 billion) in real-time transactions daily in August this year. 

Kitty Lai Hau-yee, the HKMA’s head of financial infrastructure development, explains that users will receive an alert message when they make a transfer in the revamped FPS system if the payee’s proxy ID is identified as high risk in the police database. More than 40 banks and stored value facility licensees are expected to join the initiatives. 

To crack down on financial crime, says Galen Wang, regional vice-president of Greater China at data-management software firm Cloudera, financial service companies should be serious about adopting technology. “The penetration rate of technology in fighting financial crime on the Chinese mainland and in Hong Kong is relatively high. Based on what we’ve seen, there’s an urgent need for compliance and security to fortify banking operations and stay one step ahead as financial fraud escalates,” he says.  

In his view, stepping up the use of data and analytics in fighting financial crime can help firms gain a more holistic view of transactions and customers, while making business operations more efficient. “This will eliminate silos to provide organizations with an integral view of all their data, and enable batch and real-time processing to analyze and detect data for quicker action to beat fraud.”

Carmen Chu Lap-kiu, the HKMA’s executive director, cited a case that testifies to the effectiveness of technological applications. In that incident, a bank found that a customer had logged into an online banking platform using a new device linked to an account associated with fraud. The lender promptly informed the customer concerned, who revealed that online banking login credentials had been shared with an individual posing as a mainland police officer. At the customer’s request, the bank swiftly halted the transaction, successfully preventing a loss of HK$4 million, Chu said. 

Crypto no exception

As Hong Kong strives to become a world hub for virtual assets, Karly Li, vice-president of edge solutions and country general manager at Tech Data, said the emerging asset class in cyberspace has great potential to beat financial fraud if regulators find it useful.

At the virtual asset base are blockchains — the shared ledger systems that secure virtual asset ownership by using cryptographic signatures. The systems are seen as a checkbook built on a network of computers around the world, guaranteeing the transparency of data records and, in theory, maintaining trust among strangers without involving a third party.

Giving non-fungible tokens (NFTs) as an example, Li says these “one-of-a-kind” assets have been made possible due to the advances in blockchain technology, with big data continuing to create opportunities to make the most of such technology.  “NFTs also provide a potentially secure and effective platform for data privacy and confidentiality, particularly for banking transactions,” she says. “Data stored on NFTs can increase data authenticity, leading to stronger governance and data integrity, which assures both transacting parties, as well as end users.”  

Since late last year, the SAR has been trying to turn itself into a hub for the next generation of Internet, or Web3, in which virtual assets like cryptocurrencies and NFTs play an integral part. However, the lure of innovation is still being hotly debated, as a litany of high-profile debacles, including the scandal involving unlicensed crypto exchange JPEX, fueled talk that the industry remains rife with sanctions dodgers and scammers.

Contact the writer at evanliu@chinadailyhk.com