Financial innovation has a habit of producing impressive demonstrations. An artificial intelligence agent completes a task in seconds. A digital asset changes hands without the usual paperwork. A payment crosses a border with a scan of a QR code. The technology is exciting, but the more important question is whether these innovations can work reliably in the real financial world.
That is where Hong Kong has an opportunity to distinguish itself. Its next phase of fintech development should not be measured simply by the number of startups it attracts or the technologies its banks adopt. The greater prize is to build the infrastructure, standards and safeguards that allow new financial technologies to operate at scale, across institutions and markets, without compromising trust.
This was the more significant message behind this year’s Hong Kong FinTech Week. Among the announcements by the Hong Kong Monetary Authority (HKMA), a common theme emerged. Whether the subject was payments, tokenized assets, AI or cybersecurity, the task was not merely to introduce new technology but to make innovation practical, dependable and commercially viable.
Consider cross-border payments. Hong Kong’s Faster Payment System (FPS) is already widely used for everyday transfers. Its expanding connection with overseas payment networks will allow users of participating local banking apps and e-wallets to make payments across more than 40 markets, covering over 100 million merchants.
The significance goes beyond just convenience for travelers. Cross-border payments have traditionally involved multiple networks, intermediaries and settlement arrangements, often adding cost and friction to relatively simple transactions. Financial Secretary Paul Chan Mo-po has made an important distinction. Efficiency does not come only from making individual systems faster. It also comes from removing the barriers between them.
The same challenge applies to digital assets. Their potential will remain constrained if they cannot be transferred and settled efficiently within the wider financial system. Hong Kong’s tokenization initiatives are therefore worth watching. The HKMA’s Project Ensemble is moving into a new phase, introducing tokenized central bank money to support the settlement of tokenized deposits. The objective is to move toward transactions that can be settled instantly, around the clock and with real value.
Following an earlier trial involving the secondary-market trading of tokenized Exchange Fund Bills, further testing will explore how tokenized assets and forms of digital money can operate within a regulated environment. The point is not to put everything on a blockchain for the sake of appearing innovative. It is to address practical weaknesses in financial markets and make transactions more efficient, while preserving the confidence on which they depend.
Yet greater efficiency also brings greater exposure. As financial processes become increasingly automated, the consequences of a failure can spread further and faster. This is particularly relevant as AI moves from providing information to taking action.
Unlike conventional chatbots, AI agents can plan tasks, retrieve information across systems and potentially initiate transactions, approvals or fund transfers. According to a Securities and Futures Commission survey, 30 percent of surveyed financial intermediaries are already using AI agents, while 95 percent expect to accelerate adoption within a year. The pace of adoption makes governance an immediate concern, not a distant technical discussion.
An AI agent that makes an incorrect recommendation is one problem. An agent with permission to act across multiple financial systems presents a different level of risk. An unauthorized instruction or seemingly minor error could trigger a chain of actions before human intervention becomes possible.
The HKMA’s Project SAGE addresses this challenge by testing financial use cases in a controlled environment and examining how AI agents should interact. The accompanying consultation explores issues such as accountability within banks, the authority granted to agents, Know Your Agent standards and the possibility of a trusted agent registry.
These may sound like technical details, but they go to the heart of financial trust. Banks have long-established procedures for identifying customers, verifying counterparties and defining the authority of employees. When software begins acting on behalf of institutions and customers, comparable safeguards will be needed. An agent must have a verifiable identity, clearly defined permissions and an accountable party behind its actions.
The same forward-looking approach is evident in the HKMA’s work on postquantum cryptography. Quantum computing could eventually weaken encryption methods that protect banking transactions, communications and digital assets. The timing of that threat remains uncertain, but migrating to new cryptographic systems will take years. Waiting until the technology becomes commercially viable could leave financial institutions with too little time to respond.
A new toolkit developed with local academic expertise is intended to help banks assess their exposure, identify vulnerable systems and plan their transition. The banking sector’s quantum readiness index currently stands at 2.3, against a target of 10 by 2030. The figure illustrates how much preparation remains. Cyberresilience is not just about defending against threats that exist today. It is also about ensuring that critical infrastructure can adapt when the underlying technology changes.
Taken together, these initiatives reveal a more coherent strategy than a collection of technology announcements might suggest. Hong Kong is working on the foundations that allow financial innovation to become part of everyday banking and markets. Payments need to be more accessible. Digital assets need reliable settlement. AI agents need clear authority and accountability. Security systems need to evolve before they become obsolete.
This is a more compelling proposition than simply positioning Hong Kong as a place where fintech companies can launch products. As an international financial center, Hong Kong already has a strong foundation in financial services, regulation and cross-border business. Its relationship with the Guangdong-Hong Kong-Macao Greater Bay Area adds another dimension, bringing together a substantial technology and innovation base with an internationally connected financial market.
There is, however, a difference between building a framework and establishing a global standard. Pilot projects and policy announcements are only the beginning. The real work will be to secure industry adoption, demonstrate reliability and ensure that the frameworks developed here can operate across jurisdictions.
Hong Kong’s competitive advantage will depend on its ability to turn innovation into reliable financial infrastructure. In the race to shape the future of finance, the most influential player may not be the one with the flashiest technology, but the one who makes it work.
The author is chairman of the Asia MarTech Society and sits on the advisory boards of several professional organizations, including two universities.
The views do not necessarily reflect those of China Daily.
