Perhaps the cliques that existed in parts of the FX market in the past have proved more adept at self-perpetuation than might have been hoped, particularly where they extended across both sell- and buy-side. Or remuneration schemes may have continued to reward those who make particularly large profits – even if the same behaviour can also lead to particularly large losses – rather than those who deliver a higher average return with fewer fireworks. Whatever the reason, times are changing in the FX market – and fast. And that’s what makes me optimistic about the future, and the role all of you here today can play in it. The FX market of tomorrow, and why embracing diversity will no longer be an option  I want to focus on three key drivers of change: technology; broadening market participation; and culture. The most profound of these for the economics of the industry is technology. Technological advances have fundamentally changed the face of trading and revolutionised the structure of the FX market. These days, only a minority of FX trades involve people actually talking to one other. And a growing number don’t even need someone to click a mouse, as algorithmic and high frequency trading techniques take over from manual trading. That is particularly true for vanilla flow trading. To take just one example, an estimated 70% of orders on EBS – a key inter-dealing platform for spot FX – are submitted by algorithms9.
But we have to ask what sort of operational risks might be involved. What sort of governance framework will banks need to ensure proper accountability? Could it lead to new ethical or other issues? For example, could the use of AI in credit scoring result in unfair treatment for certain groups of customers? Will AI output require additional “human” perceptive oversight? 25. To help banks, the HKMA recently issued two circulars, one on high-level risk management principles on the use of AI, and the other on the related consumer protection issues. We tried not to make these overly prescriptive, as this is a new area. The fact is that banks and ourselves are learning together. We all still need to explore exactly how technology should be implemented and overseen in practice. 26. The HKMA is conducting research in AI applications to help everyone. We are publishing some results today, in the form of an information sheet of facts and figures from an industrywide survey. One key finding is that almost 90% of our retail banks have already implemented, or are planning to implement, AI in their business applications. We will publish a series of reports in the coming months to provide more insights into the application of AI in the financial services industry. 27. We also want to work more with banks and the technology sector on developing regulatory technology, or RegTech. We all know that data analytics and machine learning can help the industry perform compliance work more accurately and more cost-effectively.