As our knowledge of the size of the threat improves, expectations of how banks should perform this role have also increased. This also means that managing financial crime risk has become a significant compliance undertaking, particularly in the area of transaction monitoring. 17.But the ability for banks to work in a sea of data and fund flows is indeed very challenging. It is not that our systems do not produce results, judging from an average annual growth of 40% in 3/4  BIS central bankers' speeches  the past five years in suspicious transaction reports. Rather, it is the degree of success by which those results contribute to the objectives of our AML system – to deter, disrupt and detect – that are increasingly under scrutiny 18.To improve our work, Regtech solutions are increasingly being recognised as highly applicable in AML. Data analytics and machine learning are seen as having huge potential to complement banks’ processes in AML/CFT surveillance, and improve efficiency and effectiveness of the process. 19.For example, the generation of huge numbers of alerts by transaction monitoring systems, which can sometimes require armies of analysts to process, is a pain point for banks. We note that some banks use machine learning and artificial intelligence to help detect and recognise suspicious behaviours and patterns, as well as to facilitate the closing of low-risk alerts. This helps free up precious analysts resources to focus on investigating high-risk cases, and in turn enhance the overall effectiveness and efficiency of the transaction monitoring process.
Increasing computing powers, together with accessibility of data and applications of new technologies, have contributed to an increased commercialisation of Regtech solutions available to the banking industry. 13.Recognising the growing need for, and developments of, Regtech solutions, we at the HKMA consider it timely to work with the banking industry and the technology community to further facilitate the adoption of Regtech in Hong Kong. To help develop the Regtech ecosystem here, the HKMA will open the Fintech Supervisory Sandbox to Regtech projects or ideas raised by banks or tech firms. I am also pleased to say that the HKMA will soon launch a series of Regtech-specific projects, through its Banking Made Easy initiative, focusing on four areas: (a) AML/CFT surveillance technologies; (b) Regtech for prudential risk management and compliance; (c) Study on machine-readable regulations; and (d) HKMA’s exploration of Suptech. 14.Let me explain each initiative in greater detail. AML/CFT surveillance technologies 15.About AML/CFT surveillance, one should bear in mind that the financial system is the gateway through which criminals must pass to make crime pay. The reality is that financial system is becoming more efficient because of technology. Efficiency brings enhanced services to customers, which are delivered through channels and at speeds we could have only dreamed of a few years ago. But these developments can equally be attractive to criminals. 16.This is where banks should come in. Banks are expected to be on the frontline of combatting financial crimes given Hong Kong’s role in the global economy.