In addition to cybersecurity, the digitisation and datafication of finance at the centre of FinTech raise a range of data-related risks, in particular to data security and privacy (the focus of Chapter 17) and also from concentration and the emergence of new Systemically Important Financial Institutions (SIFIs) in the form of digital finance platforms, TechFins and BigTechs. These new entrants bring with them a range of regulatory challenges we analyse here.

Speculation has been mounting that the digital yuan will be used to displace the US dollar and circumvent sanctions. In retaliation, financial institutions can be targeted whereby US dollar payment or financial system access can be sanctioned. If the United States weaponizes the dollar, the digital yuan will not provide sanction protection beyond the status quo. The digital yuan’s true innovation is the ability to manage capital controls and facilitate financial liberalization. Being a programmable currency, the digital yuan enables Mainland China to open its economy more expeditiously than would normally be possible, while providing the regulatory levers to manage monetary and financial stability. Mainland technology companies are instrumental in the circulation of the digital yuan through electronic payment platforms. These same technology companies have recently established virtual banks and stored value facility payment platforms in Hong Kong. This chapter argues that technology is introducing new risks into Hong Kong’s banking system which pose a material risk to financial stability. To manage these risks, financial data supervision and infrastructure is required which currently does not exist. With the recent growth surge and volatility in cryptocurrency markets, the current approach of neglecting financial stability supervision is erroneous and reckless.

Prior to the 2008–9 global financial crisis, regulatory and supervisory frameworks were not designed to manage the orderly failure of systemically important financial institutions. Governments were compelled to bail out these institutions to mitigate a deeper financial and economic crisis from developing. In response, the Financial Stability Board formulated an internationally endorsed financial institution resolution framework. The regulatory attributes of the Hong Kong Monetary Authority strengthen its role as the lead resolution authority in the banking sector. This chapter argues that supervisory gaps and underlap undermine the effectiveness of the resolution regime and the Hong Kong Monetary Authority acting as a resolution authority. Cross-border resolutions pivot on coordination and intent between jurisdictions. During a banking crisis, multiple bank subsidiaries entering into resolution will severely stretch the resources of Hong Kong’s resolution authorities. Moreover, small credit institutions, are not captured by the regime. Historically, small credit institutions have caused several systemic banking crises in Hong Kong. Moneylending markets have grown exponentially over the past decade with the emergence of FinTechs and TechFins. Consequently, Hong Kong’s moneylending market is becoming a financial stability risk because a substantial portion are inadequately regulated and fall outside the resolution regime.