Lawmakers urge regulators to clone HKMA’s sandbox in effort to encourage fintech industry

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, several lawmakers said at a monthly financial affair panel meeting on Tuesday.

“While the Hong Kong Monetary Authority has introduced the sandbox to help banks to develop their fintech services, the Securities and Futures Commission [SFC] and the Insurance Authority have not had much progress. This is not good for Hong Kong as fintech is not only related to banks but it is also an important area for brokers, insurance companies and other non bank organisations,” said Charles Mok, a lawmaker representing the information technology sector.

Fintech refers to the emerging industry where companies use new technology to compete against services provided by traditional financial institutions and intermediaries.

The HKMA sandbox, a pilot scheme that allows banks to try out new fintech products without the need to get full regulatory approval, was introduced in September.

Banks such as Citibank and Standard Chartered Bank are already running trials under the softened regulatory regime.

Mok said the SFC should do more to promote crowd funding, which refers to the ability to support a venture by raising funds from a large number of people via the internet.

Equity crowd funding is banned in Hong Kong although some overseas markets allow these platforms.

Mok also urged the insurance regulator to help insurers use new technology to provide services to customers.

“Singapore has comprehensive fintech development measures for banks, brokers, insurers, fund management companies and financial advisers. We would urge the SFC and Insurance Authority to introduce their own sandbox,” Mok said.

Hong Kong’s 500 stockbrokerages also find it hard to use fintech to sign up overseas customers or to promote other online trading services outside the city due to restrictive regulations, according to Christopher Cheung Wah-fung, a lawmaker representing the financial services.

“We have a lot of brokers who want to open accounts for customers based on the mainland and overseas. The current regulations stipulate that the account opening process be conducted in person in Hong Kong. This is very outdated as it is not using the technology to serve customers,” Cheung said.

Dennis Kwok Wing-hang, a lawmaker for legal sector, said the HKMA’s sandbox should be broadened in scope to benefit smaller companies.

However, the SFC argues that it doesn’t need to introduce a sandbox.

“We understand that HKMA’s sandbox is intended to assist current authorised institutions in testing new technologies like mobile banking with a limited group of customers. As such, it is a relaxation of currently existing HKMA supervisory requirements that require pre-vetting of such technologies. The SFC doesn’t have equivalent requirements and therefore is not in need of relaxing such requirements,” an SFC spokesman said, adding that the regulator is also keen to introduce measures for brokers and fund managers to develop fintech.

A spokeswoman for the Office of the Commissioner of Insurance said: “The Hong Kong Monetary Authority, Securities and Futures Commission and Office of the Commissioner of Insurance have established their respective dedicated fintech liaison platforms to enhance communications with the fintech industry.”