Hong Kong must embrace innovation or risk irrelevance

Hong Kong takes note as big data and processing power promise gains for all aspects of global finance

PUBLISHED : Monday, 23 April, 2018, 8:37pm
UPDATED : Monday, 23 April, 2018, 8:37pm

Technology-driven disruption has permeated nearly every form of industry, forcing enterprises to adapt or be left behind. Global finance has been among the quickest to embrace technology to drive measurable efficiencies. The rapid rise of big financial data and raw processing power promises to deliver further gains for every aspect of the industry.

This has not gone unnoticed in Hong Kong. Chief Executive Carrie Lam Cheng Yuet-ngor this month reiterated at a Bloomberg investment conference that innovation and technology will be a key area for government support, where she plans to build up enough critical mass to help the city stay economically competitive. Technology will play such an important role in the future of finance, that firms, regulators and institutions in Hong Kong will need to fully embrace and understand it, or risk irrelevance.

Hong Kong is one of the world’s most important financial centres, and it is shaping its own unique future as a global gateway into China. Technology is already playing a sizeable role in finance here, where we have been operating for 25 years. Some of the latest financial tools are already being deployed in cutting-edge firms that require the latest in natural language processing, trade surveillance and liquidity risk management.

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At the recent Boao Forum, President Xi Jinping announced measures that will be beneficial for Hong Kong. One was the further relaxation of China’s financial services industry, paving the way for more foreign participation. A second measure was to create a more favourable investment environment and enhance China’s alignment with international rules. This is where Hong Kong is likely to benefit the most, where international best practices have already been adopted.

Carrie Lam in response said that the city will continue to be the “conduit”, providing the needed professional services to access “the more favourable investment environment in the mainland”. From the launch of the Shanghai-Hong Kong Stock Connect in 2014, the Mutual Recognition of Funds in 2015, the Shenzhen-Hong Kong Stock Connect in 2016 to Bond Connect in 2017, there have been strong supportive policies that help the city play an important role in global finance.

At another recent Bloomberg event, Adena Friedman, president and chief executive of Nasdaq, told a room of C-suites that new marketplace technologies – machine intelligence, blockchain and quantum computing – will inevitably become of integral importance in how capital markets impact the investment world of the future.

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The good news is that firms in Hong Kong are already looking into these nascent areas as well as others like robo-advisory with interest. Hong Kong must continue to focus on driving innovation within its traditionally strong financial markets to secure its role at the heart of Asia’s future of finance.

However, it’s how the Hong Kong financial services industry adapts to new technologies that will define its long-term success. And this mainly comes down to the environment and guidelines set by policymakers and regulators in keeping watch over rapidly transforming financial markets.

Hong Kong should focus on application of tech, instead of tech innovation

The Securities and Futures Commission’s launch of a regulatory sandbox in 2017 should help establish a place for the region’s most innovative regulatory technology firms to test their ideas and help the city accelerate its use of technology to address regulatory requirements. This is a positive step in ensuring Hong Kong’s regulatory environment leads the way globally and it needs to continue.

The lines between traditional finance and technology are increasingly blurring but we are confident that with the right mindset and guidance, the city has its sights set on the right markers. The future of Hong Kong is invariably tied to the future of finance, which is looks to be a boon for the Pearl of the Orient.

Jeffrey Leckstein is the head of Hong Kong for Bloomberg