I was shocked when I learned that, in the past year, there have been multiple incidents of innocent people being charged with criminal offenses and finding themselves on the police wanted list, or being chased after by debt-collection agencies. The cause, unbelievably, was just that they had lost their Hong Kong identity cards. Criminals were able to use these stolen ID cards to successfully register cars in the names of the ID owners and to borrow large sums of money from Hong Kong’s financial institutions. Even more unbelievably, timely reporting of the loss of ID cards to the police did not help. Somehow, the Transport Department and financial institutions that loaned out large sums of money were oblivious to the fraudulent use of the ID cards. When the misregistered vehicles were used in crimes, the genuine ID-card owners were hunted down by the police and arrested. Some were harassed by debt collection agencies. While these incidents have made life difficult for innocent Hong Kong residents for weeks and even months, the losses related to the JPEX and Hounax fraud cases could be the defrauded people’s life savings. Meanwhile, Hong Kong’s reputation as an international financial center suffered.

Hong Kong years ago vowed to establish itself as a smart city. It is frustrating that these incredible things could happen. These things never happened before our Smart City drive.

Hong Kong has stumbled. Many financial institutions are advertising that they could in minutes approve loans without the borrower appearing in person in their offices. These financial institutions may not even have offices because they could be virtual banks. There are presently eight virtual banks in Hong Kong, which use fintech to eliminate the need for maintaining physical offices. This obviously saves both personnel and rental costs. Virtual banks offer convenience and rapid service, and they claim that by using high-tech encryptions, authentications, digital certificates and secure protocols, they can achieve safety and security that compare favorably with traditional banks. However, the problem is that, even though the loan applicant can present a genuine ID card, lenders must still verify that the applicant is the ID cardholder. The cited incidents show that this step had not been taken.

I also wonder what the police did after receiving a report that an ID card was lost. The police need to make this information available to the Transport Department and financial institutions. The Transport Department and financial institutions must check with the Police Force to ensure that a presented ID card is not on the list of lost ID cards if the applicant is not there in person.

Hong Kong must do better in averting financial fraud. The surge in financial crimes is alarming. This is related first and foremost to the advent of financial technology. In the United States, FTX founder Sam Bankman-Fried was found guilty on all seven criminal fraud charges. Billions of dollars of losses were piled up in just a few years. Today, bitcoin is regaining its glory fast. Many other cryptocurrencies have, however, seen their demise. According to an article in Forbes Advisor in March, CoinMarketCap reports that there are approximately 22,932 cryptocurrencies, with a total market capitalization of $1.1 trillion. Their values fluctuate wildly, and among them, the Luna and the TerraUSA tokens promised to be stablecoins that offer stability. Yet “TerraUSD’s price fell from $116 in April (2022) to a fraction of a penny.” Stablecoins were supposed to be backed by the US dollar or a commodity like gold, and they were designed by experts with strong fintech backgrounds.

Financial innovations are unstoppable, and natural developments like information technology offer new opportunities for finance to leverage on, and there is no reason not to take advantage of the opportunities

Financial innovations are unstoppable, and natural developments like information technology offer new opportunities for finance to leverage on, and there is no reason not to take advantage of the opportunities. However, prudence must be exercised. New opportunities are often associated with new risks. The Hong Kong Monetary Authority and the Securities and Futures Commission must ensure that safeguards are there to protect Hong Kong people from falling into the traps of fraudsters. The Personal Data (Privacy) Ordinance must not stand in the way of protecting the public interest because it was passed in order to further the public interest. Access to private information by authorized people or entities for an authorized purpose must be allowed. Allowing such access does not mean that abusing this exemption cannot be punished.

Hong Kong has recently lost its third place in the Global Financial Centres Index ranking to Singapore. We should not be excessively concerned about these rankings, as long as we get our act together so Hong Kong can serve our motherland, the region and the world well as a financial center.

There was a time when people often complained about the difficulty of setting up a business bank account in Hong Kong. I can understand the need to ward off possible money laundering. But there is always a need to find the golden balance between excessive caution and lack of caution. This is the prudence that we need as we strive to make Hong Kong a functionally vibrant global financial center.

The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.