Hong Kong is currently aiming to turn itself into a global financial technology (fintech) centre. Recent reports suggest that Hong Kong has now implemented a new policy regime which will provide fintech firms with the regulatory environment they require to thrive. Htet Tayza comments.
Prominent financial centre
Hong Kong has a thriving financial services sector and the city regularly ranks as one of the most prominent financial centres on earth. The Financial Services Sector in Hong Kong notes that this industry’s contribution to the city’s gross domestic product (GDP), rose from 13% in 2004 to 17% in 2014. In other words, financial services are becoming increasingly vital to Hong Kong’s economy.
But the rise of fintech is changing financial services worldwide. To compete with major finance industry hubs such as Singapore, which is now Asia’s biggest financial centre, Hong Kong needs to attract fintech companies. According to Accenture, global fintech investment grew by 74% from 2014 to 2015, so attracting fintech firms could prove key to Hong Kong’s economic growth going forward.
But Hong Kong, many experts suggest, has fallen behind other major global financial centres in terms of fintech regulation. Countries such as the UK, Australia and Singapore have all fostered more regulated fintech industries than Hong Kong, Companies operating in these territories can experiment with emerging fintech models, without being forced to comply with burdensome financial rules.
Asian rival Singapore has adopted a light touch approach to fintech regulation. This has proved effective at attracting fintech-related ventures to the city state. For example, global giant IBM recently announced that it will open its first blockchain research and development centre in Singapore.
In order to compete with Singapore, Hong Kong has established what regional news hub MIS Asia calls a “sandbox” fintech regulatory regime. The sandbox, which came into force on 6th September 2016, supplies financial firms operating in Hong Kong with development tools and data feeds.
If banks wish to utilise this sandbox, they are required to directly apply to the Hong Kong Monetary Authority, the territory’s central bank, to receive permission. It is noted that only banks which are hoping to utilise fintech models, such as robo-advisers or ledgers, to improve the efficiency of their operations, are eligible for Hong Kong’s sandbox programme.
Commenting, consultancy firm EY Hong Kong’s Fintech Leader, James Lloyd, says that “the sandbox concept allow regulators to become familiar with new business models.” Through the sandbox, financial institutions can manage the flow of customers in order to supply more effective banking services, while exempting themselves from traditional supervisory requirements. Yet it is vital that banks test the sandbox system beforehand, to ensure that their consumer data is shielded effectively.
Htet Tayza’s commentary
Talking about the government’s approach to fintech, Hong Kong’s Financial Service and Treasury Bureau was quoted by The South China Morning Post saying that “we will help ensure that an appropriate balance is struck between market innovation and investors’ understanding and tolerance of risk.” With the sandbox, it is clear that Hong Kong is aiming to emulate the success of countries such as Singapore and the UK, by implementing fintech regulation which gives firms the environment required to experiment and grow, while safeguarding traditional financial services, which are crucial to financial growth. Only time will tell whether Hong Kong’s sandbox policy proves effective, allowing the territory to compete with more prominent regional fintech hubs such as Singapore.