1、Adapting to a New Reality Hong Kong Banking Report 2020 2 | Hong Kong Banking Report 2020 Contents Introduction Overview Banking in 2030 Regulatory-driven transformation Overview Governance, risk and compliance Financial crime compliance Natural language processing Operational resilience Pricing AML
2、 Third Party Risk Management Non-performing loans Workforce management 4 6 14 22 24 26 28 30 32 34 36 38 40 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All
3、rights reserved. Hong Kong Banking Report 2020 | 3 LIBOR AI in banking Transaction banking Culture Tax IFRS 9 and credit risk Suitability ESG Wealth management Customer experience Financial highlights About KPMG Contact us 42 44 46 48 50 52 55 58 61 64 67 94 95 2020 KPMG, a Hong Kong partnership and
4、 a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG Interna
5、tional Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 | Hong Kong Banking Report 2020 In this years annual Banking Report, we review the financial results of banks in Hong Kong in 2019, and also offer our views and predictions on the future of the industry, especially in
6、light of the onset of COVID-19. In terms of the performance of banks in Hong Kong in 2019, there were some difficult times operationally, but banks generally fared well and profitability was up. Margins held up, costs were flat overall and in line with income increases, credit costs remained low, an
7、d the cost-to-income ratio remained fairly stable despite the social unrest in the city in the latter half of 2019. However, the reality of the situation is that the largely positive results in 2019 are likely to be forgotten as the outbreak of COVID-19 has caused significant disruption and challeng
8、es to economies, businesses, communities and people worldwide. The effects of COVID-19 are expected to have a significant impact on the results of banks in Hong Kong in 2020 and likely beyond and will change the banking landscape permanently. Indeed, the pandemic has been a catalyst for change in th
9、e banking sector, with the industry having to respond, recover and adapt to a New Reality. In our view, as banks respond to the effects of COVID-19, they will go through four phases: Reaction responding to immediate challenges; Resilience managing through uncertainty; Recovery resetting and identify
10、ing opportunities; and the New Reality adapting to a new world. Navigating through these phases and adapting to the New Reality will be key for banks in order to continue to grow and succeed, especially with profitability expected to be significantly impacted in 2020. Introduction Paul McSheaffrey P
11、artner, Head of Banking Isabel Zisselsberger, Head of Customer and Operations, Hong Kong, KPMG China; Peter Outridge; Head of People Jianing Song, Partner, Risk Consulting, KPMG China 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with
12、 KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved
13、. 22 | Hong Kong Banking Report 2020 James OCallaghan Partner, Head of Technology Consulting, Hong Kong KPMG China Jianing Song Partner, Risk Consulting KPMG China Regulatory-driven transformation COVID-19 is the catalyst that will fast-track regtech development in Hong Kong In the past year, the im
14、portance and effectiveness of regtech in banking has been brought to the fore in Hong Kong, evidenced by the citys fast-growing fintech community and increasing regulatory guidance and support. We believe that the onset of COVID-19 is a catalyst that will accelerate the adoption of regtech by banks
15、in Hong Kong. Banks are starting to realise that these technologies are the way of the future for cost-effective regulatory compliance, operating models and to maintaining a strategic advantage in the long run. Drivers of change As Hong Kongs regulators demand more transparency, accountability and g
16、ranular information from banks, they continue to push for greater regtech and fintech adoption in financial services. These efforts have come in the form of new guidance around data, emerging technologies and artificial intelligence, as well as through initiatives such as the launch of fintech and r
17、egulatory sandboxes and accelerator programmes. While these developments have helped the market move in the right direction, we believe that the new reality brought about by COVID-19 marks a watershed moment that will fast-track regtech development and adoption in Hong Kong. The pandemic has caused
18、significant disruption to traditional operating models, ways of working and consumer behaviour and expectations. These shifts mean that organisations that have been successful in the past may now face significant challenges if their business models no longer remain relevant in todays new environment
19、. The same disruption that has shaken up other sectors is also already taking place in the banking industry, including in the space of compliance, regulation and supervision. The traditional model of how banks and regulators view compliance is changing, and there is a real need for banks to capitali
20、se on the significant benefits that regtech can bring. For example, with banks having invested in beefing up their compliance and risk teams after the global financial crisis, the current economic climate will cause some concern around whether these existing levels of infrastructure costs can be sus
21、tained. Investing in digital solutions like regtech will help to manage costs in this challenging environment, while also helping to defend the business from the disruption that is already taking place in the banking sector. Furthermore, regtech can bring benefits beyond just cost- effectiveness, su
22、ch as increased speed and operational efficiency, and greater coverage of compliance. Regtech can also reduce costly recurring regulatory and risk overhang, and can act as a workforce enabler to upskill and free up talent in the organisation away from manual processing and spending time on clearing
23、false positives, and towards a greater focus on the higher-value issues and tasks. The global spread of COVID-19 has also challenged financial institutions reliance on Centres of Excellence and regional shared service centres. Indeed, one Overview Investing in digital solutions like regtech will hel
24、p to manage costs in this challenging environment, while also helping to defend the business from the disruption that is already taking place in the banking sector. Furthermore, regtech can bring benefits beyond just cost-effectiveness, such as increased speed and operational efficiency, and greater
25、 coverage of compliance. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Hong Kong Banking Report 2020 | 23 Leading banks may also seek to
26、partner with advisors who can offer a combination of technology expertise and deep risk and regulatory experience in the market to adopt a new technology enabled strategy to meet current and future regulatory challenges. consequence of COVID-19 could be the scaling back of globalisation, which will
27、undoubtedly have an impact on existing operating models and organisational structures. The approach of relying on single large service centres to capitalise on labour arbitrage may not be optimal in the post-COVID-19 market environment; regtech is part of the solution to reducing the reliance on the
28、se centres and making it easier to manage regulatory compliance onshore. Now is the time for action We believe that COVID-19 has firmly placed regtech front and centre for banks, and will break through barriers to its adoption such as resistance to change and the fear of the unknown. Banks in Hong K
29、ong now need to start actively thinking about the business challenges that can be solved with regtech, take advantage of the fintech and regulatory sandboxes and trial some new technologies and proofs of concept. Banks should also view regtech not just through an innovation lens, but instead as a ke
30、y component of their overall business strategy, with key decision-makers driving the conversation. Importantly, banks need to have the right data strategy and digital infrastructure in order to truly reap the benefits that regtech can bring. Regtech can then in turn help to accelerate banks digital
31、and data strategy. Regtech is essentially two sides of the same coin. The same data and platforms which power regtech solutions can also be leveraged to boost business intelligence for banks around their products, services, cross-selling opportunities, customer behaviour and workforce for example, i
32、dentifying the attributes of their best performing RMs. In addition, if implemented holistically and effectively, with the right data structure in place, regtech will become an invaluable part of the business as it will allow banks to predict emerging risks with greater speed and accuracy. This is a
33、 really powerful benefit for banks, and it will only get more rewarding over time as more data is collected and analysed. The adoption of regtech in the region is also particularly important for international banks operating in or seeking to set up a presence in mainland China. The legal and regulat
34、ory landscape in mainland China often requires global banks to develop unique digital infrastructure and data management strategies for that market. While the traditional approach for international banks has been to roll out regtech solutions from the head office, we believe that this is one area wh
35、ere banks in Hong Kong can exercise more autonomy over the systems they choose and the infrastructure they build, therefore providing them with more opportunities to trial regtech solutions for the region. Leading banks may also seek to partner with advisors who can offer a combination of technology
36、 expertise and deep risk and regulatory experience in the market to adopt a new technology enabled strategy to meet current and future regulatory challenges. It is clear that COVID-19 is a wake-up call for banks in Hong Kong to move with the times. Just as other sectors such as consumer and retail h
37、ave experienced a significant shake-up due to increased digitalisation and disruption, the financial services industry is next. We are already starting to see pockets of mass disruption in the sector, with technology players carving out components of banking such as payments, online investing and ro
38、bo-advisory. In our view, the regtech, fintech and broader digital transformation conversation should no longer be just about how to do things cheaper, faster, more accurately and with less risk. It should be about how to gain a strategic advantage and remain relevant in the new normal post-COVID-19
39、 environment, and how to future- proof the organisation so that it is prepared for new market dynamics, regulatory expectations and client demands. We believe that the banks that have the audacity to take swift action and truly embrace regtech are the ones that will maintain a competitive edge and s
40、ee long-term growth and success. In this section, we outline three key areas where banks can achieve quick wins and realise tangible benefits through the adoption of regtech: governance, risk and compliance; financial crime compliance and natural language processing. 2020 KPMG, a Hong Kong partnersh
41、ip and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2020 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG I
42、nternational Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 | Hong Kong Banking Report 2020 Governance, risk and compliance Technology-enabled GRC solutions is the direction of travel for banks in Hong Kong What do marketing and risk and compliance budgets have in common
43、? John Wanamaker famously said: “Half the money I spend on advertising is wasted. The trouble is, I do not know which half.” Risk and compliance professionals have it marginally better than Mr Wanamaker: We know that time and resources are wasted on teams trying to identify, gather and aggregate ris
44、k information across the organisation in such a way that management attention and remediation efforts are targeted effectively and in a timely manner. Enter Governance, Risk and Compliance (GRC) technology. Todays tools promise much, but do they deliver? A challenging environment of shrinking margin
45、s and ever-increasing regulatory focus is driving banks to leverage regtech as a means of balancing regulatory expectation with the cost of compliance. Regulators investment in technology for supervisory purposes and increasing requirements for more granular and online prudential reporting act as a
46、powerful inducement for banks to follow suit. In the area of risk and compliance, the premise of a single tool that will host all risk information, help standardise and streamline thresholds for findings and escalations, help consistently rate issues across business lines, drive workflow and allow f
47、or tailored user configurable reporting sounds like a winning proposition. Indeed, the ability of management to have a single source of truth to better understand the current state of their control environment and compliance with regulatory obligations would be a significant benefit for banks, espec
48、ially in light of increasing regulatory expectations. There is no doubt that when used well, GRC technology offers an effective solution to enhancing compliance across all three lines of defence while simultaneously reducing inefficiency. In fact, we believe that GRC technology is no longer a nice-t
49、o-have for banks it is a necessity. However, organisations that are considering a GRC implementation should think through all of the components and key activities necessary to ensure a successful implementation. Without proper analysis and planning, and especially a full understanding of their current framework, banks that rush into implementation may find that their business processes are not ready for automation. At best, this can lead to expanding timelines and costs. At worst, the technology fails to live up to expectations.
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