Financial Crime Compliance

Hong Kong’s status and reputation as an IFC brings with it significant responsibilities in the area of financial crime compliance (FCC). Banks in the city are under constant pressure not only to comply with regulations but also to anticipate and counteract increasingly sophisticated threats.

Traditional approaches to FCC, which have relied on large teams and manual processes, are reaching their limits in many cases. To address this, banks should be seeking to adopt AI and advanced data analytics to strengthen their FCC capabilities. Over the next 18 months, accelerated adoption is expected in three areas:

AI-based transaction monitoring is a standard tool in AML compliance, offering superior detection accuracy and minimising false positives compared to traditional rule-based systems. However, as the technology continues to advance and incorporate machine learning, it will help banks respond to shifting criminal tactics in real time, improving their ability to detect suspicious activities.

While the use of AI in digital onboarding has become standard, banks should also be focused on using AI for ongoing due diligence. This will allow them to keep risk assessments up to date, not just at the start of a relationship but throughout.

Traditionally, fraud detection has been a “track and trace” exercise—banks find out about fraud after the fact. The next step is real-time, even pre-emptive detection.

The growing use of AI in FCC is not only being driven by financial institutions themselves, but also by major technology providers and solution vendors. Many banks are moving away from monolithic, single-system approaches in favour of more agile, best-in-class tools that can adapt to changing threats and regulatory expectations.

In parallel, Hong Kong regulators are working to foster a more collaborative approach to combating financial crime. The HKMA is preparing to launch a new supervisory technology platform that will enable real-time sharing of suspicious transaction data among banks in Hong Kong. This initiative is gaining momentum, backed by proposed updates to Hong Kong’s data privacy laws.

Looking ahead, deeper public-private partnerships should be expected. The Hong Kong Police Force’s “five pillars” strategy has already strengthened cross-industry collaboration in the financial sector, and other new alliances are emerging. For example, the HKMA and the Insurance Authority are exploring joint initiatives to address cross-sector risks, while the Hong Kong Police Force is deepening collaboration with technology providers to stay ahead of criminal tactics.

While this collaboration is promising, many banks are likely to face persistent challenges in achieving efficiency and effectiveness in financial crime compliance, despite allocating significant resources. As the threat landscape continues to evolve, banks must ensure that their investments in compliance, technology, and talent deliver tangible value. This requires ongoing assessments of existing frameworks, benchmarking against best practices, and the development of clear roadmaps for ongoing improvement.