Hong Kong trials blockchain for property loans, digital identity and trade finance

Central bank explores tech, but cautions against legal risks.

Hong Kong’s central bank is testing blockchain platforms for mortgage loan application, trade finance, and digital identity management. The results and progress of the three proof-of-concepts were published in a new report on blockchain by the Hong Kong Monetary Authority and the Hong Kong Applied Science and Technology Research Institute. The mortgage loan application is at the most advanced stage of the three projects. “The current mortgage loan application process is time-consuming, laborious, manually-intensive and paper-based,” the report said. The project explores the use of blockchain at three steps of the loan application process: property valuation, property ownership verification and mortgage count. Banks currently require an evaluation of the market value of the property involved, and they must keep the physical reports for two years. The projects digitises these reports and stores the records using the distributed ledger technology, where participating banks can access it using a key. The second step is property ownership verification by banks. It can currently take up to 40 days for property ownership information to be updated in the government’s land registry system. Hong Kong is exploring whether title deeds data can be stored on a blockchain platform, allowing banks to access and maintain up to date records. Third, the central bank trialled blockchain for banks to share the number of outstanding mortgage a customer has among themselves. This information is required by banks when customers apply for a new mortgage loan. Blockchain will increase the efficiency and accuracy of the entire process, the report said. It will make it more difficult to make unauthorised changes to the data and reports. In trade finance, Hong Kong is studying how blockchain can be used for smart contracts between buyers and sellers, track the status of trade transactions and the matching of invoices to purchase orders. Hong Kong is also studying the potential for banks to share customers’ digital identity information on a blockchain platform. Customers would no longer be required to submit the same personal information to multiple banks. It would also cut the costs and time for banks to verify identities. The report also cautions against the risks involved in using blockchain, including in supporting money laundering, illegal sales and ransom payments. There are still major legal questions about “which activities should be regulated, how activities should be regulated, and by whom they should be regulated”, it adds. The next phase of the project will study the legal aspects of blockchain and provide updates on the results of the proof of concepts. Image by Bernard Spragg - CC0 Public Domain