Private banks are the ideal playground for companies that will participate in Hong Kong’s open application programming interface (API) framework once it opens up to the banking industry.
Speaking to Citywire Asia, law firm Hogan Lovells partners Mark Parsons and Emily Reid said that while the initial rollout is for retail banks, private banks will be a natural progression for further opening up banking infrastructure.
‘In due course, the holy grail of open banking probably is private banking because there is so much more to work with,’ said Reid. ‘I’m quite sure it will move in that direction.’
The partner said that financial technology companies and start-ups will benefit greatly from the framework, with a chance to manage a private banking customer’s investments and accounts without the full weight of the regulatory framework and costs, which will continue to sit primarily with the bank.
‘The third party would have visibility of the customer's assets and liabilities and help customer management through remote access effectively,’ she added.
An open API allows third-party providers to access bank account and investment data, for example, to create new financial services offerings such as apps and platforms. In 2012, Credit Agricole launched an API marketplace that now has over 50 applications.
Following closely in the footsteps of Singapore, UK and the European Union, Hong Kong recently ended a consultation on an open API framework for banks as part of its ‘New Era of Smart Banking’ initiative, launched to maintain the competitiveness of its financial services sector.
According to Reid and Parsons, taking the UK’s Open Banking initiative as an example, the framework will first extend to savings accounts and credit cards in retail banks, and then potentially to loans and mortgages.
‘I think it is only natural that we will see others in the banking industry, including private banks, looking at how to enhance their platforms,’ Parsons said.
However, the framework needs to function within strict regulation, which is where private banks might hit roadblocks.
‘Why? Because there is more risk in that sort of relationship and you need to understand the source of funds, risk tolerance and investment strategy and make sure products are being properly sold in line with suitability requirements,’ Parsons said.
‘For that reason, retail banking is probably the more obvious corner of the banking environment to start with because it has more straightforward services in terms of moving money and basic credit products.’
Saxo Bank, for one, has opened up its investments and trading infrastructure to private banks and wealth managers via the REST API, which is also used by Amazon.
Providing it as a white-labelled ‘banking as a service’, the platform not only delivers the investment software but also conducts corporate actions and back office reconciliation, eliminating the need for private banks to take on the costs and build the entire infrastructure.
Explaining the framework, Christian Hammer, head of platforms at Saxo Bank said that an open API will allow the bank to use all logic of placing orders and get client account and cost information through some well-defined calls to the Saxo server.
The server will generate the client’s account information, portfolio performance and holdings for the bank, for example, and the bank can use that information for the own services, such as an app or a private banking platform, only focusing on developing the front-end capabilities.
‘It's about making that logic available to a wider offering in ways that are not confined within the platform,’ Hammer told Citywire Asia.