Experts call for better fintech regulation in China, Hong Kong
Financial technology experts are calling for better regulations in China and Hong Kong to help the industry thrive, especially since existing laws still lag behind the pace of innovation and technology.
China, which is home to companies operating mobile payments and financial technology (fintech) services like Alibaba affiliate Ant Financial and Tencent, is widely regarded as a global leader in the fintech industry. Alibaba owns the South China Morning Post.
Ant Financial operates third-party online payment platform Alipay, while Tencent operates WeChat Wallet, a mobile wallet feature built into its messaging app WeChat. Collectively, both companies account for more than 70 per cent of the third party online payments market in China, according to market research company iResearch, with well over a billion users between them.
“If we look at the evolution of the payments system in China, we can see that it’s built from ... frequent e-commerce, expanded via smartphones through [mobile] payments, and more recently to finance,” said Douglas Arner, professor and co-director of Duke-HKU Asia America Institute in Transnational Law, who was speaking at the Latham & Watkins Shenzhen Technology Conference on Wednesday.
While innovation in China’s fintech industry was seen as desirable at the beginning since it helped companies get around existing inefficiencies in the financial industry, there has been a change in regulatory approach, where Chinese regulators are more careful about the risks in fintech, Arner added.
Everything is fair when the rules are enforced. A clear, reasonable regulatory body would help [fintech] start-ups to grow
Last October, China pledged to better supervise the country’s growing online finance market, including peer-to-peer (P2P) services, after several P2P platforms such as Ezubao scammed investors out of US$7.6 billion dollars by offering fake investment products.
Although fintech has largely thrived in China due to the lack of a regulatory system, some fintech start-ups in China also welcome stricter regulations to level the playing field.
Lawrence Yu, chief executive of online financial investment platform Shulaibao, said at the conference that he welcomed more “reasonable” regulations from the government.
“When you set the rules clearly and fairly, then credible companies have a chance to succeed,” Yu said. “Everything is fair when the rules are enforced. A clear, reasonable regulatory body would help [fintech] start-ups to grow.”
Yu added that regulations would also help protect customers who invest with fintech companies from being cheated by Ponzi schemes, such as Ezubao.
But China isn’t the only market in which regulators are just starting to explore a regulatory framework for the fintech industry. The Hong Kong Monetary Authority last September launched a Fintech Supervisory Sandbox, an initiative for banks to test out new technologies and applications in financial services.
“[Hong Kong’s] sandbox only applies to banks in Hong Kong, but where do start-ups come into play? Start-ups cannot take advantage of [this initiative],” said Timothy Ma, Tencent’s legal director in Hong Kong.
“The problem is that it’s questionable whether [financial institutions] are sophisticated enough to promote fintech,” Ma said.
Luke Grubb, partner at law firm Latham & Watkins in Singapore, praised the Monetary Authority of Singapore as being “one of the most progressive regulators in the world” since it has established a regulatory sandbox accessible to both banks and start-ups, unlike Hong Kong.
“Singapore is looking to ride the fintech wave. Last year there were over 200 new fintech start-ups in Singapore, and maybe 100 in Hong Kong,” Grubb said.
