On 27 Sep 2024, the HKMA published a research paper outlining GenAI adoption trends, regulatory principles, and suggested practices for financial institutions. The paper emphasizes governance, fairness, data privacy, and transparency as critical pillars, while highlighting facilitation initiatives including the GenAI Sandbox to enable safe testing and responsible implementation of GenAI solutions.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction and Purpose
On 27 Sep 2024, the Hong Kong Monetary Authority (HKMA) published a research paper titled 'Research Paper on Generative Artificial Intelligence in the Financial Services Sector' to provide a comprehensive overview of GenAI adoption, regulatory principles, and suggested practices for financial institutions. The paper is based on an industry survey of 137 practitioners and in-depth interviews with 16 organizations across banking, securities, and insurance sectors, aiming to guide responsible GenAI integration while addressing key challenges such as regulatory compliance and operational risks.
Current Adoption of GenAI
The HKMA's research reveals that financial institutions are predominantly focusing on internal-facing GenAI use cases (47 out of 59 reported cases) to enhance employee productivity, including summarization of information, workflow automation, and quality assurance. External-facing applications like customer chatbots remain nascent due to concerns about technological maturity and regulatory clarity. Key pain points addressed include information overload, time-consuming repetitive tasks, and human errors, with institutions prioritizing internal efficiency gains before expanding to customer-facing solutions.
Key Regulatory Principles
The paper outlines four core regulatory principles for GenAI: (1) Governance & Accountability, requiring clear roles, explainability, and human oversight; (2) Fairness, mandating bias mitigation and equal treatment; (3) Data Privacy & Protection, emphasizing robust security and user consent; and (4) Transparency & Disclosure, necessitating clear communication to customers about GenAI usage. The HKMA compares how these principles are implemented across jurisdictions including the EU, Hong Kong, Mainland China, Singapore, the UK, and the US, highlighting alignment with existing frameworks like the EU AI Act and Hong Kong's Ethical AI Framework.
Suggested Practices for Adoption
The research paper provides a deployment value chain framework with key practices: pre-deployment (business case development, proof-of-concept, risk assessment), deployment (system integration, security, technology risk management), and post-deployment (ongoing monitoring, compliance, training). It emphasizes establishing a robust governance structure with human-in-the-loop approaches, rigorous bias testing, and continuous feedback loops. Financial institutions are advised to adopt a risk-based approach, ensuring GenAI solutions align with regulatory requirements and ethical standards throughout their lifecycle.
Facilitation Initiatives
To support GenAI adoption, the HKMA has launched the GenAI Sandbox (in collaboration with Cyberport) to provide a risk-controlled environment for banks to test solutions. Additional initiatives include a HKD 3 billion A.I. Subsidy Scheme for computing power, the HKAI Lab Accelerator Programme, and events like Hong Kong FinTech Week and FiNETech2, which showcase GenAI applications and foster industry collaboration. These efforts aim to address resource constraints, knowledge gaps, and regulatory uncertainty while promoting responsible innovation.
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