A plea for rules, even if Hong Kong loses in fintech to Singapore

Hong Kong is losing out to Singapore in fintech development because securities and insurance regulators have not done enough to encourage the development of a flexible regulatory culture supportive of new services ...

-- SCMP Business, April 19

What charming irony. A city where a long list of do-and-don’t restrictions governs practically every step the inhabitants take is now said to have a more flexible regulatory structure than Dodge City.

Yup, flexible alright. They certainly do a lot of flexing in Singapore, what with the weight of the rule book that dictates their lives.

Have you heard, for instance, why fishing has never taken off there as either industry or sport? You haven’t? Well, the reason is that in Singapore even the fish don’t dare open their mouths.

But let’s separate this matter of fintech into its two different parts.

Finance (that’s the “fin” part of fintech, you know) has two different aspects – the payments system and the financing of assets.

The world leader in payments is probably China. Who bothers going to a shop any longer in a major Chinese city? You look up what you want on the web, you order it and you authorise the transaction with an account and PIN number instruction to your payment agency (a bank, let’s say).

The vendor then similarly confirms the transaction and your purchase is quickly loaded on a motorised trishaw at the warehouse. You may have it delivered to you as quickly as within the hour.

I think one reason that China has led in this particular fintech revolution is that it never had much of a high street or mall culture, certainly not on the scale of the United States or western Europe, and just jumped over this transition stage.

Another reason may be that, with all the strictures of a command economy, normal human ingenuity channelled itself into advances that a command economy did not control, leave alone recognise.

Whatever the case, they are ahead of us here on the mainland. We still have shops where fintech is a plastic cash bucket hanging from the ceiling by a bungee cord.

Then again, perhaps we don’t want more. Causeway Bay has always been a magnet to my children. That noisy, busy, tactile shopping experience has its delights and, with our superb transport links, there is no problem getting there.

The financing side of the equation is another matter and there are good reasons why we may not formally want to adopt the latest fashion here – crowd funding.

The problem lies not so much in the “tech” of how the money is raised. You make a general appeal, sort of like the Community Chest, and people respond.

It works fine for charities when those who subscribe the money want in return only the thanks of the organisers for having met their social obligations.

This is, in fact, what crowd funding often comes to. Supposedly commercial ventures mostly turn out to be social enterprises, exercises in hubris that scorn return on investment as greed.

The backers have done good for humanity. Who needs profit, when you can live on government grants?

But it does not work well for real commercial ventures, which is why crowd funding will never amount to much.

The problem is that outside investors, few of whom can know as much about the business as the insiders do, need some element of protection from insiders who regard them -- as Beijing does for instance -- purely as sheep for the shearing.

This is why we have listing requirements and we demand prospectuses with audited accounts for companies that pitch the public for money.

Call them barriers, obstacles, hindrances to development, if you will. The clever lawyers who live by pulling the wool over the listing committee’s eyes certainly say so.

But if we did not have these rules we would soon also not have the sheep. We would have killed them off.

Fintech does not really offer us an easy way over these hurdles to public investment. At issue are not questions of technology, but of human nature. Technology does not have the answers to them and never will.

I am all for a flexible regulatory culture in the payments system. Bring it on. But I want a stiff legal culture to govern the stocks I buy.