Hong Kong Unveils Dual-Track AI Framework for Financial Sector While Expanding Crypto Oversight

Hong Kong has announced two major policy initiatives aimed at strengthening its position as Asia’s premier financial hub, introducing both a comprehensive AI framework for the financial sector and new tax incentives for cryptocurrency investments.

Hong Kong’s Financial Services and Treasury Bureau (FSTB) has introduced a comprehensive policy framework for artificial intelligence in the financial sector, marking a significant step in the city’s efforts to maintain its position as Asia’s premier financial hub while embracing emerging technologies.

The policy statement, released on October 28, outlines a dual-track approach that aims to promote AI development while addressing potential risks in the financial services sector. According to the FSTB, Hong Kong’s financial institutions have shown remarkable receptivity to AI adoption, with implementation rates surpassing global averages.

“After all, it is a balancing act – capturing opportunities and mitigating risks,” the FSTB stated in its policy document. The framework identifies six key opportunities for AI applications, including enhanced research capabilities, automated risk assessment, improved customer service, and fraud prevention.

To ensure responsible AI implementation, the Securities and Futures Commission (SFC) will issue a circular in November 2024 detailing specific regulations and risk management guidelines for licensed corporations. The framework emphasizes the importance of human oversight, data privacy protection, and cybersecurity measures while addressing concerns about potential job displacement in the sector.

On the cryptocurrency front, Secretary for Financial Services and the Treasury Christopher Hui announced the expansion of existing tax concessions to cover digital asset investments. The new tax framework will offer:

• A profits tax exemption at the standard rate of 16.5%
• A 0% tax rate on carried interest for private equity managers
• Potential stamp duty relief for qualifying transactions

“We are being asked all the time about government incentives for growing this sector,” Hui stated during Hong Kong Fintech Week. He emphasized that expanding tax concessions would provide “extra impetus” to market development.

To support AI innovation, the Hong Kong Monetary Authority (HKMA) launched a Generative AI Sandbox in August 2024, enabling banks to test innovative AI applications within a controlled environment. The initiative includes technical support and targeted supervisory feedback to ensure responsible innovation.

The policy announcement comes as Hong Kong continues to expand its digital finance footprint. The government has also commissioned the Hong Kong Generative AI Research and Development Center to develop guidelines for AI technology applications and established an AI Supercomputing Centre at Cyberport to support local research institutions and industry players.

The framework requires financial institutions to implement comprehensive AI governance strategies and adopt a risk-based approach in their AI systems’ procurement and management. Special attention is given to preventing AI hallucination risks and ensuring model transparency to protect consumer interests.