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Greater Bay Area

Greater Bay needs regulatory ‘sandbox’ for fintechs, urges China’s former top banking regulator

PUBLISHED : Thursday, 26 October, 2017, 4:36pm
UPDATED : Monday, 30 October, 2017, 3:39pm

Liu Mingkang, a former chairman of China’s banking regulator, is urging the setting up of a dedicated so called regulatory “sandbox” for the ever-growing Greater Bay Area – the Pearl River Delta region linking 11 cities in southern Guangdong province, including Hong Kong and Macau.

Regulatory sandboxes are effectively “safe, supervised spaces” in which new businesses can pilot innovative products, services, business models and delivery mechanisms without immediately incurring any regulatory consequences.

They can help firms reduce their time-to-market at potentially lower costs, protected with appropriate consumer safeguards built into new products and services, and be offering better access to finance.

Speaking at the Everbright Investment Conference in Hong Kong on Thursday, Liu said: “The development of the Greater Bay Area is important because it will be used by the whole nation to gain better experience of the continuous opening-up reforms.

“We want to see how the Greater Bay Area applies certain requirements and fundamentals using a market-oriented approach under regulations which will produce success for some companies, and inevitably mean failures for others,” said Liu, who chaired the China Banking Regulatory Commission (CBRC) from its creation in 2003 until he retired in 2011.

In recent months, Chinese financial technology (fintech) firms especially have come under the spotlight as urgently needing their own regulatory framework, as many have been created in the hope of gaining not only domestic, but international success.

It is expected they will enjoy significant levels of business from China’s flagship “Belt and Road Initiative”, and Hong Kong is already considered very much a nursery for the booming sector.

There is also expected to be a rise in overseas investments and M&A activity by Chinese companies around the world, but Liu said by operating increasingly on an international stage, better regulation is needed in financial innovation, to prevent potential market panic and avoid systemic risk, especially when some companies fail or commit financial crimes.

A regulatory sandbox in the Greater Bay Area, ideally in Hong Kong, could provide a low-cost testing ground for Chinese fintechs to verify their products and services, he added, to see if they would be suitable to overseas market conditions under whatever laws, regulatory processes and accounting practices apply.

“The sandbox for the Greater Bay Area project could provide good communication, too, between regulators and market players,” Liu said.

Foreign US and European companies also wanting to come to China, but who are unclear on policy regulations and the market, could also make use of the sandbox to test out Chinese opportunities, at low cost.

He proposes a steering committee involving representatives of all three main areas – Macau, Hong Kong, Guangzhou – should meet monthly, to focus on the most-promising companies, particularly in blockchain, the internet of things, and other leading areas of innovation.

Another key focus, he proposes, is how to use law- and market-oriented practices to develop better cross border bankruptcy settlement procedures in the Greater Bay Area.

“Under Hong Kong’s ‘one country, two system’ principal, there is a room for cooperation on our judicial laws, especially on cross-border bankruptcy settlement, where interdependence, and mutual trust is needed,” said the former CBRC chief,

While mainland business laws have been improved significantly in recent years, especially bankruptcy legislation, Liu said when it came to settlement and compensation expertise, many Chinese courts still lack expertise and professionalism.

He singled out Shenzhen as having good bankruptcy courts, with Hong Kong’s arrangements in place to handle bankruptcy and frozen assets are of international standards.