Hong Kong Regulator Urges Banks to Adopt AI for Policing Financial Crime

One of Hong Kong's key financial regulators, the Hong Kong Monetary Authority (HKMA), has called on banks to adopt artificial intelligence (AI) to help combat financial crime. The HKMA, which serves as the central bank of the jurisdiction, suggested that advanced technology could enhance the accuracy of Suspicious Transaction Reports (STRs).

The regulator has set a deadline for financial institutions, giving them until March 2025 to complete a feasibility study on AI implementation and submit their findings. The HKMA stated that Hong Kong banks "should give due consideration to adopting artificial intelligence" within their anti-money laundering (AML) monitoring systems to ensure their effectiveness in preventing financial crime.

The feasibility study should take into account each institution’s current money laundering risk profile and anticipated future growth. According to the HKMA, "A feasibility study based on the [company’s] current money laundering risk profile and possible [growth] in the near future should be undertaken." The final version of the study must be signed off at the board level and submitted to the regulator by the end of March 2025.

Suspicious Transaction Reports (STRs) are tools used by banks and other financial institutions to alert regulators to potential criminal activity. However, most banks rely on generic technology programs that generate massive volumes of STRs—often in the thousands or even millions. Law enforcement agencies have stated that only about 5%, or even fewer, of these reports are ever fully investigated.

Raymond Chan, the executive director of Enforcement and AML at the HKMA, argued that AI could generate more "actionable intelligence" to improve the effectiveness of current systems. In a speech delivered at an event in Shanghai, Chan remarked, "Existing approaches to AML can no longer guarantee the integrity of our financial systems, particularly in the area of suspicious activity surveillance."

Chan further emphasized the regulator’s commitment to enhancing the ability of banks to detect and prevent illicit financial activities, saying, "The HKMA will soon be rolling out a programme to uplift the capability of banks in monitoring and detecting criminal activities."

He concluded by stating, "Our banks will be asked to critically evaluate the feasibility of applying artificial intelligence in their monitoring of illicit activities."

This push for AI adoption represents a significant step towards modernizing financial crime prevention and improving the effectiveness of AML efforts in Hong Kong.

By fLEXI tEAM