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Hong Kong Monetary Authority (HKMA)

HKMA embraces FinTech as it burnishes Hong Kong’s brand to compete as Asia’s financial hub

FinTech Innovation Hub and Sandbox provide easy testing grounds for banks’ financial products

PUBLISHED : Tuesday, 06 September, 2016, 1:13pm
UPDATED : Friday, 26 January, 2018, 4:14pm

The Hong Kong Monetary Authority has unveiled a series of policy initiatives for banks to embrace technology, as it sharpens its edge to compete with Singapore and Tokyo as Asia’s financial centre.

The HKMA will set up a FinTech Innovation Hub and a FinTech Supervisory Sandbox, two initiatives aimed at spurring banks to embrace technology to make financial transactions safer, speedier and more convenient for consumers.

“Technology has provided many new and very convenient means to conduct financial transactions, ranging from the basic payment and banking services to the more sophisticated trading and investment activities,” HKMA Chief Executive Norman Chan said at Hong Kong’s annual Treasury Markets Association gathering on Tuesday. “Without compromising consumer and investor protection, the HKMA embraces the use of FinTech and innovation.”

The HKMA’s FinTech hub with the Applied Science & Technology Research Institute will provide a controlled environment separate from banks’ internal systems, where financial institutions can be equipped with the needed resources to develop technology products related to finance.

“While some of the largest banks have built their own laboratories, this new FinTech hub will cater for the big and small institutions alike such that the industry as a whole would be able to adopt new technologies more speedily and in a more collaborative manner,” Chan said.

The Sandbox initiative provides a speedier approvals process for FinTech experiments. With the HKMA’s approval, banks can test their FinTech pilot services without requiring a third-party assessment. Once the tests are successful, they can be further tested by the HKMA before being allowed to be launched for public use.

While some of the largest banks have built their own laboratories, this new FinTech hub will cater for the big and small institutions alike
Norman Chan, HKMA

The FinTech hub could be used to test innovations such as biometric authentication technology, such as facial or voice recognition techniques used in the payments industry.

“HSBC fully supports this new exciting initiative for the testing and introduction of new digital banking services, which will bring faster, innovative and more convenient services to customers. We believe this can be an important catalyst for the development of banking technology in Hong Kong,”

said Raymond Cheng, HSBC’s group general manager and chief operating officer for Asia Pacific.

Benny Luk, ICAP’s North Asia regional chief executive, said Hong Kong lags behind other cities and the new measures will help the city catch up. “Many overseas markets such as the US and Singapore have developed their FinTech quickly,” he said.

Reaction to the initiatives from industry was mixed. Simon Loong, chief executive of online lender WeLab, one of Hong Kong’s largest fintech companies, said he is awaiting more information about the scope of the sandbox and whether it will include areas under the remit of the city’s other financial regulators.

However, Loong said if the sandbox is limited to innovations by banks there will still be room for WeLab to benefit as it is working with banks on areas such as know your customer (KYC) rules for internet-acquired clients. “In addition to exploring and implementing fintech ourselves, we are working with banks,” he said.

Arthur Hayes, chief executive of bitcoin derivatives trading platform Bitmex, said the sandbox announcement failed to address other issues facing fintech in the city, such as the small market and banking stumbling blocks for small businesses.

“It’s a good idea but because the market in Hong Kong for any start-up is very small, you’re integrating with a banking system that only serves 7 million people when the banking system you really want to integrate with is in mainland China where you’ve got 1.3 billion people.”

The HKMA is keen to enhance Hong Kong’s competitiveness to catch up with Singapore as Asia’s

financial hub. Hong Kong surpassed Tokyo as the world’s fourth-largest foreign exchange trading centre as of April, bolstered by active transactions of offshore renminbi.

Average daily foreign ­exchange turnover in Hong Kong surged 59 per cent to US$437 billion in April, compared with 2013, according to the Bank for International Settlements’ triennial survey.

London remains top of the league with US$2.43 trillion of daily currency transactions, followed by New York with US$1.27 trillion and Singapore at US$517 billion, the BIS survey said.

Hong Kong’s position could slip, as offshore yuan dropped 7 per cent against the US dollar in the past year, leading people to exchange their yuan deposits to other currencies.

The value of yuan deposits in the city declined 33 per cent to 667.11 billion yuan (HK$774 billion) at the end of July from a year earlier.

“The yuan deposit pool may go up and down with depreciation of the renminbi, but this would not affect demand of the yuan in the long term,” Chan said. “Hong Kong will continue to develop as an international yuan trading centre.”

Additional reporting by Alice Woodhouse