The Applied Research Programme covers research projects that are highly relevant to questions of interest to the financial industry and regulators in Hong Kong; and broad research themes that explore very new developments in financial markets with the aim of providing the financial industry in Hong Kong with ideas regarding its strategic development in the long run.

The following projects will be delivered in 2020.

Fintech adoption and innovation in the Hong Kong banking industry
Financial technology (Fintech) refers to innovations and emerging technologies that are used to improve and automate the delivery and consumption of financial services. Banks around the world have largely adopted Fintech to streamline operational workflows and to innovative products and services that can improve customer satisfaction. This project assesses the status of banks’ adoption of Fintech in Hong Kong. The findings from this project are important in helping banks in Hong Kong assess their positioning and enhance awareness about key aspects of their Fintech adoption. For regulators, the findings from this study will aid their policy making and decisions regarding the impact of Fintech adoption in the banking business.

Artificial Intelligence: What it means for the banking industry landscape, compliance and supervision
Modern Artificial Intelligence (AI) is a branch of computer science that aims to create intelligent machines. This cutting-edge technology has become an essential part of many facets of the technology sector. AI provides banks with new opportunities to streamline operational processes and to innovative products and services that can deliver enhanced experience for consumers, but also creates potential challenges to established banking practice, regulatory compliance, and banking. This project assesses the current AI utilization and future adoption plans of banks and their implications on compliance and supervision in Hong Kong. The findings from this project aim to inform market participants and regulators about the latest development of AI in the Hong Kong banking industry and facilitate a further discussion on policy issues.

Developing Hong Kong into a global green bond hub
Global warming and climate change are causing more frequent and extreme weather events leading to new challenges and risks to economies worldwide. Reflecting greater social awareness and support for financing green projects, recent years have seen significant growth in the global green bond markets, facilitated by government initiatives and a notable trend towards the inclusion of environment, social and governance considerations in the investment mandates of fund managers. This project assesses the international experiences of and policy initiatives for green bond markets and seeks to understand issues from the perspectives of local green bond market participants. Globally, growth in the green bond market is expected to gather momentum, with issuance expected to surge in the coming years. This project explores how Hong Kong, as an International Finance Centre, can tap into the growth potential of the global green bond market and identify opportunities to support and accelerate Hong Kong’s development as a global green bond hub.

The impact of algorithmic and high-frequency trading (AHFT) on market liquidity and volatility in Hong Kong
AHFT is one of the main market innovations that have occurred, across different countries and various asset classes, in the past two decades. While AHFT has been studied in detail for major international markets, especially in the aftermath of brief but volatile events (labelled as ‘flash crashes’), the adoption and the potential effects of AHFT in the context of Hong Kong financial markets has not fully explored. Some believe that AHFT may play a significant role in driving market instabilities and, ultimately, affects market functioning. This project aims at addressing these concerns and it investigates the extent of AHFT in Hong Kong financial markets, especially with reference to its potential impact on market liquidity and volatility. Given the importance of AHFT and the attention placed on it by policy makers and regulators, the implications of the results of the analysis for the existing regulatory framework are also considered.