The Hong Kong Monetary Authority (HKMA) is the territory’s de-facto central bank. As Hong Kong is a special administrative region of the People’s Republic of China, this city-state operates under the “one country, two systems” philosophy. This philosophy allows socialism and communism to coexist and Hong Kong to maintain some of its autonomy. Due to these political distinctions, the Hong Kong monetary policy and business regulation differ from the Chinese mainland.
Why does this matter to businesses?
Hong Kong remains a global business and finance hub, as well as a gateway to the Asia-Pacific region. All companies taking advantage of the city’s business-friendly environment must be aware of the Central Bank of Hong Kong to achieve full regulatory compliance.
The Hong Kong Monetary Authority was established four years before the now-territory returned to the People’s Republic of China. The merging of the Office of the Exchange Fund and the Office of the Commissioner of Banking led to the formation of the HKMA.
Otherwise known as the Central Bank of Hong Kong, the HKMA is governed by both the Banking Ordinance and the Exchange Fund Ordinance. Its primary responsibilities are to ensure the stability of the city’s monetary policy and banking systems.
The Hong Kong Central Bank plays a key role in the economics of both Hong Kong and the People’s Republic of China. Due to the fact that the city has long been a major global center for foreign multinationals, this organization is responsible for maintaining the territory’s position. It’s a member of the East Asia and Pacific Central Banks and maintains a sovereign wealth fund.
In short, the HKMA is the beating heart of the territory’s economic stability.
Anyone running a business within Hong Kong must be aware of the rules and regulations set by the Hong Kong Central Bank because they filter down into the financial and business systems. It’s especially important for companies operating in the Fintech (financial technology) sector.
Many people assume central banks primarily print money, but the HKMA is responsible for many more crucial operations.
Unlike most central banks, the Monetary Authority delegates the responsibility of printing banknotes. The actual printing is carried out by three major commercial banks. These are the Standard Chartered Bank, HSBC, and the Bank of China.
However, the central bank retains complete control over the frequency of new issuances and denominations.
Interest rates in Hong Kong are controlled through an automatic interest rate adjustment mechanism. This is used to keep the exchange rate at a suitable level.
Whenever demand for the Hong Kong dollar (HKD) decreases, the conversion rate weakens. The Monetary Authority of Hong Kong responds by purchasing HKD through its major commercial banks. They also carry this out in reverse when the demand increases.
The Linked Exchange Rate System keeps the HKD pegged to the United States dollar, the international reserve currency. The HKMA is responsible for managing this mechanism.
In practice, this system requires the territory’s monetary base to be backed in full by foreign reserves, and the HKMA must maintain this balance at all times.
As well as managing Hong Kong monetary policy, the Hong Kong Monetary Authority is responsible for developing the financial infrastructure of the city.
The majority of the territory’s economic fortunes hinge on maintaining it as a significant financial center in Asia, as well as the rest of the world. The changes it makes to the financial infrastructure go a long way to not only meeting international standards but defining them.
Fintech, which has become a huge part of the global financial market, is extremely disruptive to legacy financial infrastructure. To facilitate the growth and development of Fintech, the central bank has worked hard to coordinate its efforts.
In 2016, HKMA established the Fintech Facilitation Office (FFO). The FFO is dedicated to nurturing startups and conducting research and development in the sector. It also serves as a platform for businesses to discuss Fintech with the authority.
One of the FFO’s biggest initiatives was the Fintech Supervisory Sandbox (FSS). The FSS allows banks and partner Fintech firms to test out tools on a limited number of participating customers. Thanks to the FSS, businesses could gather data and customer feedback without worrying about full compliance with current regulations.
Today, all Fintech businesses are responsible for cooperating and interfacing with the central bank before releasing an application. Compliance can be complex, as Hong Kong is well-known for its stringent rules within the financial sector.
If you plan on operating a Fintech business in or through Hong Kong, you’ll need to achieve full compliance with their standards. Implement a Fintech solution to make compliance easy, as well as to expedite the fast and secure transfer of data.
Contact Delphix to learn more about enabling digital transformation in Fintech while complying with data privacy regulations such as HKMA.