Technological advances, business innovation, global competition and a major regulatory push have led to a shift in focus by Hong Kong financial institutions towards managing the complexities of change with financial regulation.

According to The State of Regtech in APAC report released today by Ireland’s trade and innovation agency Enterprise Ireland, ranked one of the world’s most active VC investors, including fintech, it has prompted financial institutions to search for more innovative regtech solutions that balance technological implementation in high risk and high volume businesses.

Harnessing technology and agility for rapid recovery, Covid-19 accelerated the industry towards greater efficiency and business leaders have had to focus on new digital platforms and processes, which can expose them to new vectors of financial crime. As such, regtech solutions that can help organisations meet regulatory compliance and risk management will need to emerge.

The comprehensive report provides an independent analysis on the adoption of regtech across 10 key Asia Pacific markets including Australia, Hong Kong, Indonesia, Japan, Mainland China, Malaysia, Philippines, Singapore, Thailand and Vietnam.

Enterprise Ireland commissioned Kapronasia, a leading Asian financial technology market research and consulting firm, to develop the report which identifies the latest opportunities and roadblocks facing regtech players in each of these markets.

As the virtual banks proliferate in Hong Kong, licensees will need to invest in regtech solutions for areas such as know your customer (KYC) and digital onboarding.

At the same time, increased competition from virtual banks will encourage existing banks to upgrade their services further and make better use of technology, including regtech, to help them reinvent workflows to increase productivity and improve customer service offerings.

Mo Harvey, Enterprise Ireland’s Financial Services and Fintech Lead (Asia Pacific) said,

“The digital revolution within Hong Kong’s financial industry has increased the availability of data, the degree of connectivity and the speed of decision-making. The recent regtech-focused initiatives in Hong Kong launched by the HKMA are also impressive from a global perspective and make it an attractive market for our best regtech companies.

 

Digitalisation offers transformational promise but also comes with the potential of far-reaching issues and significant security breaches, resulting in the swift cascading of consequences. Therefore, organisations will need to comply with evolving regulations in response to changing business and consumer needs. This report is a compendium for anyone in the regulatory, risk or compliance functions of any company in the region, as well as for regtech companies which are looking to scale and expand into Hong Kong and Asia Pacific.”

Brian Tang, co-chair of the Fintech Association of Hong Kong’s Regtech Committee and co-convener of the APAC RegTech Network that brings together the regtech committees of the fintech associations of Hong Kong, Singapore, Japan and Malaysia said,

“Regtech is a secret sauce that empowers financial institutions, fintechs, virtual asset service providers and beyond. All such institutions, and their regulators and users, across the Asia-Pacific benefit from innovative, efficient and cost effective regtech solutions to combat financial crime and drive efficiencies and financial inclusion, regardless of origin of such technology solutions.”

He added,

“However, the journey to adoption is certainly not a straightforward one. We congratulate Enterprise Ireland for making this comprehensive report on the state of regtech in APAC publicly available so that regtech solution providers from across the globe, as well as APAC policy makers, can benefit from its findings to help drive further regtech adoption in the region”.

It has been forecasted that the global regtech market will grow from USD$6.3 billion in 2020 to USD$16.0 billion by 2025, a rate of over 20% per year, with Asia Pacific expected to have the highest growth rate over this period.

Regulators in Hong Kong are taking an active role in guiding the development and uptake of new technologies, players, and platforms, and are proactive in developing the regtech sector to mitigate against the increased risks presented by an increasingly complex financial system.

A number of regulatory initiatives have been launched over the years, including the Hong Kong Monetary Authority (HKMA) expanding its Banking Made Easy initiative to facilitate regtech developments focusing on anti-money laundering (AML) and counter-terrorist financing (CTF) surveillance technologies, regtech for prudential risk management and compliance, and study on machine-readable regulations.

It also announced the development of a two-year roadmap to promote regtech adoption in the Hong Kong banking sector, which is designed to support the development of a thriving ecosystem that would transform Hong Kong into a regtech hub, paving way for more global regtech providers such as those from Ireland to enter the market.

Key Hong Kong insights include:

• Fintech industry consolidation accelerated by Covid-19

In the wake of Covid-19, the Hong Kong government has provided emergency funding for its fintech and regtech ecosystem, enabling individuals and companies to move closer towards digital financial transformation.

• Regtech is now a priority for InvestHK

The government body responsible for Hong Kong’s Foreign Direct Investment has set regtech as an agenda priority, as the territory is a net user of regtech and the government is actively pursuing overseas regtech firms to join its financial ecosystem.

• GBA initiative presents opportunities for Hong Kong-based regtech firms

The Greater Bay Area (GBA) initiative intends to transform the integrated economic cluster in the Guangdong-Hong Kong-Macau region into a new Silicon Valley-type technology and innovation hub. With numerous bilingual professionals with Chinese market experience, regtech firms with a presence in Hong Kong are well equipped to expand their business to the mainland.

• Regulators expected to be highly proactive in regtech development

As Hong Kong moves further into the era of virtual and online banking, the HKMA and the Privacy Commissioner for Personal Data will be focusing heavily on remote on-boarding and data related controls.

• Industry commitment helps raise awareness and demand in the market

Apart from government and regulators’ initiatives, there has been increased support from the bottom-up. Associations such as ASIFMA are stepping forward to encourage discussion and collaboration around regtech, and the RegTech Committee of the FTAHK organises RegTech Live events and legaltech and regtech hackathons.

The State of Regtech in APAC report is available to download here.