FSDC urges Hong Kong government to set up fintech office, focus on blockchain
The Hong Kong government should set up a financial technology (fintech) office to better coordinate the city’s efforts in becoming a hub for developments such as blockchain and insurance technology, according to an advisory body.
The Financial Services Development Council (FSDC) on Tuesday released a research report suggesting that Hong Kong narrow its focus to five areas within fintech in order to catch up with cities like Dubai and Singapore and to cement its position as a fintech hub in the region.
The five areas are cybersecurity, payments and securities settlements, digital identification for KYC (know your client), wealthtech and insurance technology, as well as regulatory technology, with the latter two designed to make the financial services industry more efficient.
“Hong Kong enjoys the unique position of helping China to develop its financial markets ... regulatory technology is one of the areas [Hong Kong can focus on]. It has a great scope especially since financial technology is a new industry and a new business model [and requires] risk management,” said Au King-lun, a committee member for FSDC’s market development committee.
FSDC on Tuesday also recommended that Hong Kong focus on developing distributed ledger technology, such as blockchain, for applications in the financial sector.
Distributed ledger technology, or DLT, enables every participant in a network to have a copy of a digital “ledger” that records all transactions occurring within the network. Each participant has the ability to edit the ledger, thereby allowing participants to bypass authorities such as clearing houses or banks to determine if a transaction is legitimate.
“Mainland China and various overseas jurisdictions are taking a proactive approach in distributed ledger technology. In comparison, Hong Kong faces shortfalls in innovation and technological capability, and the ecosystem is not yet established,” the council said.
Hong Kong, with its large financial sector, is likely to be greatly impacted by the technology. Although distributed ledger technology is still nascent, it has the potential to transform the financial services industry, the committee added.
In its report, FSDC recommended that the Hong Kong government take the lead in development of distributed ledger technology, supported by academia and advisory groups. It also recommends development of a hub to act a focal point for the ecosystem to educate, advocate and serve as a point for ideas and contacts.
James Lloyd, a member of FSDC’s new business committee as well as the Asia-Pacific fintech lead for EY, said that while there has been “significant attention” from the Hong Kong Monetary Authority, Cyberport, Hong Kong Applied Science and Technology Research Institute (ASTRI) and Hong Kong Science and Technology Parks, more coordination is required from all parties to “leverage the new tech breakthroughs to better deliver services”.
Lloyd said it was important for Hong Kong to be ready in digital ledger technology, especially as the city is positioned to capitalise on the likely issuance of digital renminbi by mainland China.
“Mainland China has taken quite a proactive approach [to DLT] and has developed a number of interesting applications. It is one of the jurisdictions likely to issue digital currency in the future and this is a great opportunity for Hong Kong to participate and leverage on this endeavour,” he said.