As we look back over the past 18 months or so, the pandemic has posed unprecedented challenges to the global economy. At the height of the pandemic, many economies implemented varying degrees of lockdown and social distancing to mitigate cross-infection risks. 6. The impact of such measures, however, has been uneven across different sectors. Since many face-to-face activities stuttered to a halt, the service sector – particularly retail, restaurants, and hospitality – was among the hardest hit. Many people in the service sector have lost their jobs and family income. 7. Likewise, SMEs were hit especially hard by the pandemic. As compared with big businesses with large financial war chests, SMEs generally are more vulnerable to cash flow crunches and shrinking business flows. In the face of frozen economic activity, many SME businesses have struggled to survive through the pandemic. If the situation was not handled promptly, one could easily find that the less defensive customer segments would be locked out of their access to financial services such as loans. 8. That is exactly why governments around the world have launched extraordinary fiscal measures to support those having a tough time. Hong Kong is no exception. The Government has launched the Special 100% SME Financing Guarantee Scheme and 100% Personal Loan Guarantee Scheme to alleviate the cash flow pressures of distressed SMEs and unemployed individuals. 9. But, apart from fiscal policy, is there any role that the financial system can play? In my view, the financial system can play three key roles. 10.
HKMA, as both a banking regulator and market facilitator, has the role of creating a conducive environment for this to happen. Therefore, we have launched a new Fintech 2025 strategy recently and will work hand in hand with the industry along this fintech journey. 18. Of course, we are mindful that technology can be a double-edged sword. If done properly, technology can enhance financial inclusion. But there are always risks. For example, the improper use of artificial intelligence and machine learning may lead to biased outcomes and even exclusion. Ill-constructed “model-based” lending could unfairly discriminate against some SMEs. And from a conduct risk perspective, customers could be advised to invest in products not in their best interests. Therefore, it is necessary to properly manage such risks and ensure fairness in the algorithms through rigorous validation and testing. 19. In other words, building a smarter financial system is not just about how much technology content we inject into it. What is more important is whether the outcome for customers is more inclusive and efficient, and whether banks can better manage the risks involved. 20. If we look at another key development priority pursued by the HKMA – Green and Sustainable 2/4  BIS central bankers' speeches  Finance – similar financial exclusion concerns could also arise. It is important that when we gear towards a greener financial system, we should also have financial inclusion in mind. This is the third role of the financial system that I want to talk about. 21.