Fighting Digital Fraud with Enhanced Approaches in Hong Kong

Responding to a significant increase in digital fraud-related banking complaints, the Hong Kong Monetary Authority (HKMA) issued a circular on enhanced approaches to combat digital fraud on 12 October 2023.

The circular provides an update on enhancements made to combat digital fraud, reemphasising the HKMA’s expectation on the banking sector to adequately resource and coordinate efforts in order to implement the enhanced measures effectively and efficiently – ultimately providing stronger protection for customers.

The HKMA has been working with the banking industry to provide regulatory support, improve collaboration and promote innovation in combating digital fraud. 

In addition to measures announced by the HKMA with the Hong Kong Police Force (HKPF) earlier this year, the enhancements focus on information sharing, transaction monitoring and customer alerts. The HKMA will continue to work closely with banks and all stakeholders to enhance the ecosystem response to the evolving threat from fraud and financial crime. 

1. Information Sharing

Fraud and Money Laundering Intelligence Taskforce (FMLIT) 

• FMLIT facilitates the sharing of information between the public and private sectors.
• Since its inception in 2017, participation in FMLIT has expanded to 28 retail banks including all eight virtual banks. Six Stored Value Facility (SVF) Licensees are also set to join the FMLIT later this year.
• The HKMA will continue to monitor how Authorised Institutions (AIs) use FMLIT data and apply analytics and other Regtech capabilities to contribute to FMLIT intelligence and analysis. The HKMA expect the AIs to allocate adequate resources to support this effort.

Bank-to-bank information sharing platform

• The Financial Intelligence Evaluation Sharing Tool (FINEST) is a platform for banks to share timely financial crime risk information including information on fraud-related money laundering activities. The goal is to enable banks to take swift mitigating measures. 
• The HKMA rolled out the pilot phase of FINEST in June 2023 covering five domestic systemically important AIs.
• Based on the experience of the pilot phase and referencing international experience, FINEST will be extended to cover more banks and a wider scope of financial crimes and accounts.
• The HKMA will soon consult the banking industry and the public on legal provisions to facilitate personal account information sharing for preventing and detecting crime.

2. Transaction Monitoring – Real-time Fraud Monitoring System

• HKMA has provided examples of how AIs may strengthen efforts in real-time fraud monitoring by applying network analytics in its Anti-Money Laundering (AML) Regtech Lab (AMLab) events and in HKMA publications.
• AIs should further explore the inclusion of more data and applying network analytics in real-time fraud monitoring systems to strengthen their ability to identify high-risk accounts and networks and alert customers of high-risk transactions. 

3. Customer Alerts – Faster Payment System (FPS) Suspicious Proxy ID Alert Model

• The anti-fraud search engine “Scameter” was launched in September 2022. It enables members of the public to check whether a transaction may be at higher risk for fraud. 
• The HKMA is now working with AIs, SVF Licensees, the HKPF and Hong Kong Interbank Clearing Limited to introduce a pre-transaction alert mechanism for FPS transactions, based on Scameter information. This mechanism will alert customers where the FPS Proxy ID of the payee is listed as “High Risk” in the Scameter engine. The objective is to give customers an opportunity to further verify, and where necessary stop, the payment. 
• In order to effectively implement the Suspicious Proxy ID Alert Model across all FPS participating AIs and SVF Licensees in the coming two months, AIs are required to make appropriate system enhancements and communicate these changes to customers in good time, making reference to the relevant circulars and communication materials issued and/or updated by the HKMA from time to time. 
• The HKMA also expects AIs to establish adequate systems and controls with senior management oversight to enable effective implementation of the measures and initiatives. The objectives and requirements should be clearly communicated to staff and key performance indicators should be developed to track performance. 
• The HKMA will collect related data from AIs and review the effectiveness at implementation and as part of ongoing supervision. 

Link to HKMA Circular:
Enhanced Approaches to Combat Digital Fraud (hkma.gov.hk)