New financial regulations on the way to help govern online fund raising platforms

PUBLISHED : Friday, 19 February, 2016, 8:47pm
UPDATED : Saturday, 20 February, 2016, 10:16am

The Securities and Futures Commission, Hong Kong Monetary Authority and Commissioner of Insurance will work together to bolster the regulatory framework for the flourishing financial technology industry, according to sources familiar with the situation.

The enhance regulations overseeing areas such as online fund raising will be among the centre pieces of new initiatives to be announced in the Budget speech next Wednesday by Financial Secretary John Tsang Chun-wah, according to the source.

The government has shied away from amending existing rules to facilitate the development of fintech in Hong Kong, even as scores of fintech businesses make up the ranks of startups populating the work stations at Cyperport in Pok Fu Lam.

Part of the regulatory focus will be geared towards enhanced consumer protections in online fund raising platforms, including peer to peer funding and crowd funding.

“The government does not want to change rules to bring more players to the party,” the source said. “There are already lessons across the border, where many investors got burnt in investing in fintech companies.”

Crowd funding is when a large number of people each contribute a small amount of capital to support a new company. Peer-to-peer lending allows individuals to borrow and lend money without going through a financial institution such as a bank. It is also known as ”social lending” and is potentially more risky than traditional lending methods.

Crowd funding and peer to peer lending in Hong Kong fall under the Securities and Futures Ordinance as well as the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

Under the SFO, there are restrictions on inviting the public to purchase shares, debt instruments or to join collective investment schemes.

Crowd funding platforms are required to be licensed if dealing or advising in securities, advising on corporate finance, or offering automated trading services and asset management.

New regulations in the United States will allow businesses to raise up to US$1 million from family, friends and other individuals through websites registered with the Securities and Exchange Committee.

Simon Loong, chief executive officer of internet finance start-up WeLab said Hong Kong has taken a more cautious approach to fintech compared to mainland China where internet finance firms have been able to experiment in a loosely regulated environment.

“You do want this to flourish, but in a responsible fashion and I think the only way to do it is to work very closely with market players,” Loong said. “And that’s what we see a lot in China where they gather market players and regulators and have a dialogue to see what are the best practises.”