Home to more than 470 fintech companies, Hong Kong is one of the most dynamic fintech hubs in the world.

Despite the ongoing economic challenges of the global pandemic, the past year has seen Hong Kong’s fintech ecosystem returning optimistic results as the government and regulators continued to roll out new measures and initiatives to boost the growth of the sector.

Hong Kong fintech funding

Reflective of global trends, fintech funding activity in Hong Kong surged in 2021. The Hong Kong Exchange (HKEX) estimates that US$68.8 billion was raised in the first seven months of the year alone. In comparison, total fintech funding totaled only US$374 million in 2019, according to an Accenture analysis.

Mega-rounds of US$100 million and over made up much of this year’s funding activity, with notable rounds that included WeLab’s US$240 million round in December, Airwallex’s US$300 million and US$100 million Series E and E1, and Qupital’s US$150 million round.

WeLab is a fintech unicorn and virtual bank operator. It has amassed over 150,000 digital banking customers, and is now looking to expand its virtual banking business into Indonesia. WeLab also closed a US$75 million round in March 2021.

Airwallex is a cross-border payment company originally from Australia, serving around 20,000 customers spanning areas like e-commerce, tech/software-as-a-service (SaaS) companies and professional services, and Qupital is an e-commerce financing platform that makes use of big data, machine learning (ML) and predictive analytics capabilities to automate credit decisioning and monitoring.

Cryptocurrencies, virtual assets continue to attract attention

Cryptocurrencies and virtual assets continued to attract attention this year with raises by FTX, one of the world’s largest digital currency exchanges (US$900 million), Amber Group, a crypto finance service provider (US$100 million), and Babel Finance, a crypto lender and asset manager (US$40 million).

Currently, virtual asset exchanges in Hong Kong are regulated only by a voluntary opt-in licensing mechanism, but the Hong Kong Financial Services and the Treasury Bureau (FSTB) is now looking to bring all virtual asset exchange operators within the formal regulatory perimeter of the Securities and Futures Commission (SFC). The bill is expected to be introduced into the Legislative Council during the 2021-22 legislative session.

While Hong Kong continues to make effort to provide regulatory clarity for crypto-related businesses, experts are warning that China’s crackdown on crypto could very well hamper Hong Kong’s ambition to become a hub for blockchain innovation and push startups out of the city.

In September, crypto unicorn FTX announced that it had relocated its headquarters from Hong Kong to the Bahamas.

Focus on regtech

Following on its development of a regtech adoption roadmap in H2 2020, the Hong Kong Monetary Authority (HKMA) continued pursuing its regtech ambitions in 2021, introducing several new initiatives throughout the year.

In November, the Anti-Money Laundering (AML) Regtech Lab (AMLab) series was launched to provide a collaborative platform for group sharing of operational, hands-on experience of regtech approaches, focusing on solutions such as machine learning in transaction monitoring process, low/no code workflow automation solutions, in addition to network analytics.

Several guides and resources were also released including the new Regtech Adoption Practice Guide series, which seeks to provide banks with detailed practical guidance on the implementation of regtech solutions, the Regtech Adoption Index, as well as the seventh and final issue of the Regtech Watch series, which centered on supervisory technology (suptech).

The HKMA’s flagship regtech event was held in June, gathering more than 4,000 participants. During the virtual conference, new initiatives were unveiled, including the rollout of a centralized knowledge hub to share regtech information and content, and the creation of a new regtech skills framework to promote upskilling of banking practitioners.

5 focus areas of HKMA’s Fintech 2025 strategy

Details of the Fintech 2025 plan were shared in June by the HKMA, outlining new strategies to drive fintech development in Hong Kong. The plan focuses on five focus areas:

• All banks go fintech: the HKMA will continue to promote the all-round adoption of fintech by Hong Kong banks and encourage them to fully digitalize their operations, from front-end to back-end;
• Future-proofing Hong Kong for central bank digital currencies (CBDCs): The HKMA will strengthen its research work on CBDCs at both wholesale and retail levels;
• Creating the next-generation data infrastructure: The HKMA will enhance the city’s existing data infrastructure and build new ones, including the Commercial Data Interchange, a digital corporate identity system, and a distributed ledger technology (DLT)-based credit data sharing platform, to facilitate consent-based data sharing;
• Expanding the fintech-savvy workforce: the HKMA will collaborate with various strategic partners to groom all-round fintech talent, both students and practitioners, through various initiatives; and
• Nurturing the ecosystem with new funding schemes and policies: In particular, a new Fintech Cross-Agency Co-ordination Group will be established by the HKMA and various industry key players to formulate supportive policies for the Hong Kong fintech ecosystem.

New measures and funding schemes

Notable policy measures and proposals were announced by the government and regulators.

The Secretary for Financial Services and the Treasury, Christopher Hui, unveiled in November a three-pronged strategy to foster fintech development. The strategy is centered on opening up government data and introducing a shared platform, establishing and chairing the Coordination Group on Implementation of Fintech Initiatives, and launching again the Financial Practitioners Fintech Training Programme.

The Insurance Authority (IA) also revealed plans to introduce an Open API Framework to further boost collaboration between stakeholders and facilitate data sharing within and beyond the insurance industry.

2021 saw the launch of new funding schemes to support the sector. These included the Public Sector Trial Scheme (PSTS) by the Innovation and Technology Commission (ITC), which provides up to HK$1 million in funding for local tech firms accepted into the Fintech Supervisory Sandbox 3.0, as well as the Fintech Proof-of-Concept Subsidy Scheme (PoC Scheme), which offered eligible PoC projects with a maximum direct one-off grant of up to HK$100,000.

Featured image credit: Edited from Photo by Soda North from Pexels