Hong Kong commences second phase of e-HKD pilot programme

The Hong Kong Monetary Authority (HKMA) has commenced Phase 2 of the e-HKD Pilot Programme (Phase 2) to delve deeper into innovative use cases for new forms of digital money, including e-HKD and tokenised deposits, that can potentially be used by individuals and corporates. As Project e-HKD expands its coverage from e-HKD only to a more comprehensive exploration of the digital money ecosystem, the project has been renamed as Project e-HKD+, reflecting the evolving fintech landscape and the HKMA’s commitment to unlocking the full potential of digital money.

The e-HKD Pilot Programme is an integral part of Project e-HKD+. Under Phase 2, 11 groups of firms from various sectors have been selected to explore innovative use cases for e-HKD and tokenised deposits across three main themes, namely settlement of tokenised assets, programmability and offline payments. The selected firms will also examine the commercial feasibility, within a real-world setting, of new forms of digital money that may potentially be accessible to individuals and corporates.

The outcome of Phase 2 will help the HKMA understand the practical issues that may be faced in designing, implementing and operating a digital money ecosystem that comprises both publicly and privately issued digital moneys. Project e-HKD+ will continue to advance the technology and legal groundwork to support the potential issuance of an e-HKD for the use of individuals and corporates in the future.

The HKMA will also establish the e-HKD Industry Forum to provide a collaborative platform for participating institutions to discuss common issues and further explore the possible implementation and adoption of new forms of digital money in a scalable manner. Under the Forum, industry-led working groups will be established to make recommendations on specific topics, with an initial focus on issues related to programmability.

Similar to Phase 1, an e-HKD sandbox will be made available to pilot participants to accelerate their prototyping, development and testing of use cases. The HKMA will work closely with the selected firms in the next approximately 12 months in conducting Phase 2, with the aim of sharing the key learnings from Phase 2 with the public by the end of 2025. 

“Project e-HKD+ signifies the HKMA’s commitment to digital money innovation,” said Eddie Yue, Chief Executive of the HKMA. “The e-HKD Pilot Programme has provided a valuable opportunity for the HKMA to explore with the industry how new forms of digital money can add unique value to the general public. The HKMA will continue to adopt a use-case driven approach in its exploration of digital money. We look forward to working closely with industry participants in Phase 2 to co-create various innovative use cases.”

 

Eurozone, UK and US see September decline in monthly business output

Both the UK and US saw a dip in business output growth in September compared to August, while the eurozone saw business output contract. The reduction in overall business activity in the eurozone was driven by a deepening downturn in the region’s manufacturing sector, where production decreased for the eighteenth month running and at the fastest pace in the year-to-date. Although services business activity continued to rise, the latest expansion was only marginal and the weakest since February.

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, dropped below the 50.0 no-change mark for the first time in seven months during September, posting 48.9 from a reading of 51.0 in August. Latest data signalled a modest reduction in eurozone business activity during the month.

The downturn in eurozone manufacturing output extended to an eighteenth consecutive month, and showed signs of deepening in September. Production decreased at a marked pace that was the sharpest in 2024 so far. Reductions in manufacturing output were particularly marked in Germany and France, but the rest of the eurozone also posted a fall. Meanwhile, the eurozone service sector managed to eke out some growth in activity at the end of the third quarter, but the latest expansion was only marginal and the slowest since February. A renewed decline in France contrasted with continued services growth in Germany and the rest of the euro area.

Eurozone business activity fell on the back of a fourth consecutive monthly reduction in new business. Moreover, the latest decline in new orders was solid and the most pronounced since the opening month of the year. Services new business decreased for the first time in seven months, alongside a further contraction of manufacturing new orders. In fact, the rate of decline in manufacturing quickened for the fourth successive month.

The headline seasonally adjusted S&P Global Flash UK PMI Composite Output Index registered 52.9 in September, down from 53.8 in August but still comfortably above the 50.0 no-change value. Higher levels of business activity have been recorded in each month since November 2023 and the latest rate of expansion was broadly in line with the average over this period.

Manufacturing production increased at a slightly faster pace than services activity, though both sectors saw a slower upturn than in the previous month. Where higher levels of output were reported, survey respondents mostly commented on rising customer demand and improving domestic economic conditions. Meanwhile, fragile client confidence and ongoing inventory cutbacks were cited as headwinds to growth in September.

September data pointed to another month of robust new business gains, led by strengthening order books across the service economy. Survey respondents in the typically noted improving sales pipelines, alongside successful marketing and promotional initiatives. The technology services sub-sector was particularly upbeat about demand conditions. However, in both the manufacturing and service sectors there were some reports of clients adopting a wait-and-see approach to decision-making ahead of the Autumn Budget. New export orders meanwhile remained relatively subdued, with total overseas sales rising only marginally in September. Some service providers noted higher demand from US clients, but manufacturers frequently suggested that weak EU sales had weighed on export orders.

The headline S&P Global Flash US PMI Composite Output Index registered 54.4 in September, down slightly from 54.6 in August but rounding off the strongest quarter since the first three months of 2022. However, growth remained uneven by sector. While service sector activity grew at a solid pace, the rate of increase running at the second-highest seen over the past 29 months, manufacturing output fell for a second successive month, albeit dropping only modestly and at a slower rate than in August.

Sector variances were even more marked in terms of order books. Inflows of new work in the service sector rose at a rate just shy of August’s 27-month high, but new orders placed at manufacturers fell at the sharpest rate for 21 months. Similarly, new export orders for services rose at an increased rate while goods export orders fell at a faster pace, highlighting divergent broader global demand conditions.

Backlogs of orders consequently rose slightly at service providers, hinting at a lack of spare capacity, but fell sharply, at the fastest rate for nine months, in factories.

Optimism about output in the year ahead deteriorated sharply, the survey’s future output index falling to its lowest since October 2022 and the second lowest seen this side of the pandemic. The deterioration in confidence was led by the service sector amid concerns over the outlook for the economy and demand, often linked to uncertainty regarding the Presidential Election. In contrast, sentiment held up in manufacturing, shored up in part by hopes of sales growth and investment reviving from recent weakness in response to lower interest rates.

 

UK government to launch trade sanctions body

The UK government plans to launch the Office of Trade Sanctions Implementation (OTSI), within the Department for Business and Trade, in October 2024. To equip the office with new civil enforcement powers, on 12 September 2024, the UK government laid a new Statutory Instrument in Parliament – The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024. These regulations were made under the Sanctions and Anti-Money Laundering Act 2018.

OTSI’s enforcement powers come into effect from 10 October 2024. They will apply to all UK persons including businesses wherever they are in the world, and any person including businesses in the UK or the UK territorial sea.

OTSI will be responsible for the civil enforcement of certain trade sanctions as they relate to UK services and overseas trade with a UK nexus. The office will be able to impose monetary penalties, and where a civil monetary penalty can be imposed for a breach, breaches may be determined on  a ‘strict liability’ basis. Penalties can be imposed on the basis of the civil standard of proof – the balance of probabilities.  

The maximum monetary penalty for breaching sanctions regulations is either £1m or 50% of the estimated value of the breach – whichever is higher. The regulations also provide OTSI with additional enforcement tools, such as making public disclosure of breaches.

The regulations also introduce reporting obligations for relevant persons, and powers to request information.  Failure to comply with either of these can amount to a criminal offence.

 

Banks believe they're eight months behind financial criminals 

US banks believe they are eight months behind criminals, with the largest institutions believing the gap is as wide as 23 months, according to research from RedCompass Labs. 

Despite the eight-month head start, 75% of banks feel confident they can close this gap and 25% feel they could “maybe” catch up. The question is how they plan to do so. The research highlights how banks are drastically underestimating criminals, with respondents believing that criminals take an average of four months to adapt after learning a new financial crime is being detected. In reality, cybercriminals can exploit newly discovered vulnerabilities within days or even hours. 

The research, “Financial crime detection: What holds banks back?”, includes findings from a survey of 300 senior payments professionals at US banks about how financial services are addressing the multi-trillion-dollar financial crime epidemic and why only 1% of financial crimes are brought to justice. 

The survey found that banks’ resources are stretched across multiple types of financial crime, as they grapple to keep up with emerging crimes, some of which are now as big a focus as the traditionally bigger ones. For example, pig butchering has become a significant concern, with 27% of banks prioritising these scams, on par with drug trafficking at 28%. The research also revealed that proliferation financing (33%), drug trafficking (31%), and cybercrime (30%) are the three most difficult crimes for banks to detect, citing a poor understanding of the personas involved as a common reason as to why.

The research also found that internal inefficiencies are holding banks back. Over a quarter (27%) of banks blame internal governance, 26% cite an overcomplicated process, and 24% say updating fraud models is not a priority. 

Banks said the implementation of new technology (39%), streamlining internal processes (39%), and faster vendor support (38%) will help them catch up with the criminal networks. However, they are divided over AI. More than half (57%) of banks believe that criminal’s use of AI will make it more difficult to detect financial crimes but just under a third (31%) of banks believe that their use of AI will ease the detection of financial crimes. 

Finally, the research suggests that a key issue is that banks underestimate criminals. Banks believe criminals take around four months to adapt after a crime type has been prevented. However, it’s been proven that some cybercriminals can adapt within “just a few hours.”

 

Checkout.com and Slope to enhance payment performance for US merchants 

Checkout.com, a global digital payments provider, and Slope, a B2B financing platform for enterprise companies, have announced the beginning of a strategic partnership that aims to boost payment performance for US enterprise merchants. 

Slope’s payment platform offers two payment solutions for B2B customers: “Pay Later” (Net Terms or Installments) and “Pay Now” (ACH and credit card acceptance). By enabling B2B businesses with the option to accept payment via terms, Slope says it is preserving their customers’ working capital while allowing those businesses to continue best serving their end customers.

Slope provides short-term financing and simple payment options for the B2B sector. In a statement about the partnership, Slope said it recognised the need for robust, reliable payment infrastructure, which is why it selected Checkout.com.

Areas of collaboration include optimising interchange costs through data field enhancements, evaluating payment data to improve performance, and improving reconciliation and cash management with Slope’s warehouse lending facilities.  Checkout.com's service model provides a dedicated team to provide strategic support, expertise and resources for the merchants they serve.

“This collaboration reinforces Checkout.com's commitment to providing scalable and efficient payment processing capabilities,” said Jim Cho, VP of Revenue Growth at Checkout.com in North America. “By integrating Slope’s innovative financing options with our robust acquiring platform, we empower merchants to optimize cash flow and drive growth in the digital economy.‍”