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Hong Kong Welcomes New Fintech Regulations And Initiatives

Hong Kong is ramping up its support for fintech and insurtech innovation with new rulings and bold initiatives that are intended to accelerate development and facilitate collaboration.

Image credit: The Hong Kong Monetary Authority, Wikipedia

Many of these initiatives are being undertaken by the Hong Kong Monetary Authority (HKMA), Hong Kong’s currency board and de facto central bank, in a bid to “prepare Hong Kong to move into a New Era of Smart Banking.”

In a keynote speech delivered during the Annual Banking Conference of the Hong Kong Institute of Bankers, Norman Chan, the chief executive of the HKMA, outlined the several initiatives that are being launched by the central bank to “lead and help the banking sector to rise to a higher level and embrace the enormous opportunities brought about by the convergence of banking and technology.”

In order for the banking sector to meet the rising aspirations and demands of customers, Chan said “banking and technology must converge sooner rather than later.”

“In the new era of Smart Banking, the industry, the fintech community and the HKMA must work together to transform the financial ecosystem of Hong Kong,” he said.

“Smart Banking will offer full interconnectivity amongst retail and corporate customers and allow financial services and transactions to be undertaken with great mobility, speed, ease and safety.”

Yet, there must be the right balance between promoting financial innovations and protecting customers and investors.

Regulatory sandboxes

Image credit: Sandbox, via publicdomainpictures.net

The HKMA said it will launch the “Enhanced Fintech Supervisory Sandbox (FSS) 2.0” by the end of the year, an upgraded version of its original fintech sandbox.

FSS 2.0 will have three new features including a Fintech Supervisory Chatroom to provide quick feedbacks to banks and tech firms at an early stage of their fintech projects. Tech firms will have direct access to the sandbox by seeking feedback from the chatroom. The sandboxes of the HKMA, the Securities and Futures Commission (SFC) and the Insurance Authority will be linked up so that there will be a single point of entry for pilot trials of cross-sector fintech products.

The announcement coincides with the launch of the SFC Regulatory Sandbox last week which aims to provide a “confined regulatory environment for qualified firms to demonstrate the reliability of their fintech solutions as well as their internal control systems at the initial stage,” said Ashley Alder, the SFC’s CEO.

Similarly, the Insurance Authority has launched the dedicated Insurtech Sandbox to promote innovation in the insurance sector and facilitate pilot programs of innovative insurtech applications run by authorized insurers.

James Lau, the Secretary for Financial Services and the Treasury, said:

“It is always our policy priority to encourage financial institutions to develop and adopt fintech. Sandboxes provide a testing environment for fintech innovation, and help expedite the launch of new Fintech products for better customer experience.

“We welcome the move by our three regulators to introduce and upgrade sandboxes to promote innovation in the financial services industry. Their initiatives will certainly help reinforce Hong Kong’s status as a vibrant fintech hub.”

Bringing banking to the digital era

Image credit: Banking Finance Savings Management Concept by Rawpixel.com via Shutterstock.com

A new task force will be set up within the HKMA to work with the banking industry to help incumbents improve processes and customer experience. Especially, the task force will focus on minimizing regulatory frictions in customers’ digital experience, including remote onboarding, online finance and online wealth management.

The central bank is also looking to promote digital and virtual banking, and said it will begin consulting the industry to review and amend the Guide to Authorization of Virtual Banks issued in 2000. The mission would be to promote and encourage digital banking.

Another main initiative announced is the Faster Payment System (FPS), an infrastructure that’s set to launch in September 2018. Banks and Stored Value Facilities (SVF) operators can participate in the FPS, which supports the use of mobile phone numbers or email addresses for payments in Hong Kong dollar and Renminbi.

An industry working group has already been established to facilitate the establishment of a common QR code standard, and ultimately promote the use of mobile retail payments.

The HKMA is also looking to formulate a policy framework on Open API. The new regulations would aim to facilitate the development and wider adoption of API by the banking sector, stimulate innovations and improve financial services through collaboration between banks and tech firms. The authority is set to finalize the framework around the end of 2017.

The HKMA will collaborate with authorities in other jurisdictions to develop of fintech innovation, as well as help boost research and talent development. This includes collaborations with the Hong Kong Applied Science and Technology Research Institute, Science Park and Cyberport to promote the introduction of new technology and processes, and to nurture fintech talents in Hong Kong.

Featured image by Sergey Nivens via Shutterstock.com.