INTERSHORES I A New Era of Smart Banking in HK - Virtual Bank License

A “virtual bank” in Hong Kong is defined as a company which delivers banking services primarily, if not entirely, through the internet or other electronic delivery channels. It does not refer to a licensed bank which makes use of the internet or other electronic means as an alternative channel to deliver its products or services to customers.


In a keynote speech delivered during the Annual Banking Conference of the Hong Kong Institute of Bankers, Mr Norman Chan, Chief Executive of the Monetary Authority in Hong Kong (HKMA) September 2017 outlined how the HKMA will take lead and help the banking sector to rise to a higher level by the convergence of banking and technology.    One of the initiatives is the introduction of virtual banks in Hong Kong.   The Guideline on Authorization of Virtual Banks 2011 which sets out the principles in deciding whether to authorize “virtual banks” applying to conduct banking business in Hong Kong King will be reviewed by the banking industry and to be amendment in 2018.    In considering whether to approve or refuse an application for authorization, the HKMA needs to be satisfied that the minimum criteria:


General Principal

For a company applying to set up a virtual bank (virtual bank applicant), fulfillment of the minimum criteria essentially means that it must have substance and cannot simply be a “concept”.


It must have a detailed business plan setting out how it intends to conduct its business and how it proposes to comply with the authorization criteria on an ongoing basis.


The applicant should attach equal importance to the management of conventional banking risks such as credit, liquidity and interest rate risk.


The  controllers, directors and chief executives of the applicant should be fit and proper persons.


Physical presence

A virtual bank applicant, if authorized, must maintain a physical presence in Hong Kong, which will be its principal place of business.  Physical presence provides a point of contact to enable customers to make enquiries or complaints and allow the applicant to verify the identity of its customers.


A virtual bank can establish one or more local branches to supplement its cyber network provided that approval has been obtained from the HKMA.  It may maintain one or more local offices provided that the notification requirement will be complied with.


To facilitate examination and inspection by the HKMA, a virtual bank must keep a full set of its books, accounts and records of transactions in Hong Kong.


Information Technology (IT) Security of Virtual Bank

A virtual bank applicant will be required to commission an independent assessment report on the security of its computer hardware, systems, procedures and controls from a qualified and independent expert to inform the HKMA the applicant’s security controls in place should be “fit for purpose”, i.e. appropriate to the type of transactions which the virtual bank intends to carry out. 


The applicant should also establish procedures for regular review of its security arrangements to ensure that such arrangements remain appropriate having regard to the continuing developments in IT security technology


Risk Management

The virtual bank applicant must go through the eight basic types of risk identified in the risk-based supervisory framework of the HKMA (i.e. credit, interest rate, market, liquidity, operational, reputation, legal and strategic risk), analyse to what extent it will be subject to these risks as a virtual bank and establish appropriate controls to manage these risks.  The application documents should provide risk management information.


Business Plan

A virtual bank applicant must be able to present a business plan which strikes an appropriate balance between the desire to build market share and the need to earn a reasonable return on assets and equity.


Terms and Conditions of Service

A virtual bank applicant should demonstrate its observation on the standards contained in the Code of Banking Practice issued by the Hong Kong Association of Banks and The Hong Kong Association of Restricted Licensed Banks and Deposit-taking Companies (The DTC Association) and put in place its terms and condition clearly.



The virtual bank applicant if outsourced its computer operations to a third party service provider should demonstrate that the principles in the SPM module on “Outsourcing” (SA-2) will be complied with.   In particular, the HKMA must be satisfied that the computer operation outsourced remains subject to adequate security controls, that confidentiality and integrity of customer information will not be compromised and that the requirements under the Personal Data (Privacy) Ordinance in Hong Kong and common law customer confidentiality are complied with.


The HKMA must have the right to carry out inspections of the security arrangements and other controls in place in the service provider or to obtain reports from a relevant supervisory authority, external auditors or other experts.


Principles Applicable to Virtual Banks Incorporated In Hong Kong

Ownership structure

A virtual bank incorporated in Hong Kong should be at least 50% owned by a well established bank or other supervised financial institution in good standing in the financial community and with appropriate experience.


Principles Applicable to Virtual Banks Incorporated Outside Hong Kong

Adequacy of Home Supervision

A virtual bank incorporated outside Hong Kong which wishes to establish itself in Hong Kong in branch form must come from a country where there is an established regulatory framework for electronic banking and the applicant must be a bank which, in the opinion of the HKMA, is adequately supervised by the relevant banking supervisory authority.


Capital requirement

A virtual bank applicant is required to maintain minimum levels of share capital of HK$300 million (including paid-up share capital and balance of share premium account).


For details, please visit HKMA's website


Need Assistance

If you are interested in digital account opening, we are ready to help you.  Please contact us at or by whasapp at (852) 6499 4686.


Whatsapp : (852) 6499 4686

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Whilst reasonable care has been taken in provision of information above, it does not constitute legal or other professional advice. INTERSHORES does not accept any responsibility, legal or otherwise, for any error omission and accepts no responsibility for any financial or other loss or damage that may result from its use.  In particular, readers are advised to take appropriate professional advice before committing themselves to any involvement in jurisdictions, vehicles or practice.










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