Capital flight from China affects Hong Kong ATM security and Chinese investors

Executives from Bank of China Hong Kong said that all of the company’s ATMs will have finger vein identification capabilities soon. They claim this type of security is more accurate than facial recognition. By now, a third of the ATMs have the technology installed.

Since the bank began testing the service in 2016, about 10,000 customers have registered to use the new verification system, with the bank hoping to see many more join the service in the near future. Last December, the tech was installed in 160 new ATMs, but there are plans for it to include the 400 cash machines installed in the city.

More secure, more reliable

According to the deputy general manager of the bank’s e-finance centre, Wang Lan, facial recognition can be affected by shape, light and other environmental factors, and therefore, it can sometimes fail. But finger veins can’t be duplicated, so the success rate is much higher than facial recognition.

This kind of authentication uses near-infrared LED to identify customers from vein patterns, which are not altered by sweat, stains or peeling on fingers. This identification can replace signatures or passwords.

This doesn’t completely remove more traditional authentication methods from the bank’s identification process. “We gave an extra security option to customers. They can still choose to use the six-digit password,” Wang Lan said.

Capital flight

This comes as the region is experiencing a sensitive time when it comes to ATMs and security. Just last month, Banks in Hong Kong experienced an unanticipated surge of more than HK$20 billion ($2.55 billion) a month in ATM withdrawals, less than a month after Beijing set strict limits on overseas activity.

China has been trying to find a remedy to capital flight for a few years now, efforts that have taken the government to implement the closing down of ATMs, the introduction of laws against multi-use cards and even the halting of overseas investment by Chinese firms – Tandem, the UK challenger bank, wasn’t able to access funding by a Chinese investor due to these policies.

In Hong Kong, however, things are slightly different. It has become a hub through which this capital outflow is being redirected, as it is legal to withdraw money using other people’ cards.

Thus, in early January, these events resulted in the aforementioned surge in ATM withdrawals. Alongside this event, the number of robberies spiked, crimes committed by these same gangs, who would wait near ATMs for vulnerable citizens and steal the cash they had just withdrawn.

City wide solution

Neighbouring Macau has recently fast-tracked a facial recognition technology programme across its ATM network to increase security. Similarly, this was an effort to make illicit capital outflow from China more difficult to achieve.

But the Hong Kong Monetary Authority (HKMA) repeatedly said that it has no plans to implement any similar programme in the city. However, it seems that this week, the HKMA reached out to the Macau homologous institutions, hinting at a change in its approach.

An HKMA spokesman said: “We are in close touch with the Macau authorities on their experiences in the use of facial recognition technology in ATM cash withdrawal. We are still assessing the effectiveness and reliability of such technology.”

The global effects on financial technology

China’s battle against capital flow is having interesting repercussions not only in the region but around the world. For cybersecurity companies, these may sound like good news, as shown in the case of the Bank of China Hong Kong.

UnionPay, China’s only clearinghouse, now requires identity cards to withdraw money in China, aiming to clamp down on middlemen flouting limits.

As we mentioned, UK challenger bank Tandem was affected after its potential investor, House of Fraser, owned by Chinese Sanpower, was forced to pull that funding.

When it comes to cryptocurrency, capital flight has played a major role in dictating what types of policies the government executes. The ban on crypto trading and ICOs in China seems to have enjoyed some success, and South Korea may have been eyeing these policies as a solution for their own capital flight problem.

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