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.
To achieve this objective, we have made it mandatory for the conventional banks to establish a dedicated Islamic banking division within the bank, create and observe a minimum Islamic banking fund, opening separate clearing account with the Central Bank to facilitate effective separation in the payments system as well as to have a separate accounting disclosure. Having these policies and infrastructure in place, we have been able to operate the dual banking system in a structured and systematic manner. Ladies and Gentlemen, Although the regulations are in place, close oversight and updated statistical reporting, supported by close monitoring through the early warning system, are necessary as measures to avoid banking failures. The global experience has shown that not all banking failures are due to economic and financial crises. The global experiences has shown that banking failures can be caused by the lack of good corporate governance in the banking institutions. Lack of transparency, lack of oversight, weak internal controls, lack of checks and balances, incompetent directors and abuse of power are among the elements of poor corporate governance. Hence, even the best regulations and supervision and the best financial safety nets cannot prevent such banking failures. The regulation of banking institutions therefore needs to be complemented and reinforced with good corporate governance.