Regulation and reform are catching up with the pace of fintech

Over the past decade, consumers have increasingly called for new products that cater to their digitally driven lifestyles. But regulators have struggled to keep up with the pace of the innovations that have emerged in response to those demands.

Some places are ahead of the curve when it comes to creating a robust regulatory environment that benefits both businesses and consumers. Take Hong Kong, for example.

Thanks in large part to a conducive regulatory ecosystem for financial services, Hong Kong has always been business-friendly. In 2019, it ranked 4th in the World Bank’s Ease of Doing Business index. Recently, policymakers built on that status by setting up a taskforce to minimize regulatory friction in customers’ digital experience and making the biggest changes to its IPO rules in two decades by allowing innovative firms with dual-class shares to go public. In addition, Hong Kong is among the first in the world to launch supervisory sandboxes as well as a cross-sector sandbox for firms to trial their fintech solutions without having to achieve full compliance with supervisory requirements.

Getting ahead of the competition in a global economy

While nimble regulatory reform might facilitate growth, scaling and leveraging technology is the recipe for remaining competitive. In Hong Kong, virtual banking is going to reshape the landscape. The Hong Kong Monetary Authority (HKMA) has granted eight virtual banking licences in March to May 2019 and the licensees are expected to commence business around six to nine months after authorization.

Engaging primarily in retail banking business and charging no minimum balance fee, virtual banks in Hong Kong will further promote financial inclusion. From an industry perspective, they will also stimulate fintech development and innovation by bringing in the latest fintech solutions to the banking industry. That includes remote customer on-boarding, big data, artificial intelligence in risk management, and the provision of personalized products and services.

For incumbent banks, these wide-scale changes will enhance business operations and services, raising the quality of banking services across the board.

Facilitating the Future of the Fintech Industry

In Hong Kong, there are currently over 40 incubators and accelerators helping businesses push the boundaries of what’s possible. The HKMA also established the Fintech Facilitation Office (FFO) in March 2016. This relatively new agency has played a pivotal role in driving fintech development in Hong Kong.

^“The FFO adopts a pro-development approach by working closely with the industry as well as supervisors of banking and payment services.^”

“For example, the FFO regularly organizes industry meetings, seminars, conferences and competitions with industry organizations and the private sector, including fintech start-ups. The aim is to facilitate the exchange of ideas and insight as well as to help start-ups connect with established financial institutions. More than 700 such events have been held so far.”

A fast-growing fintech hub

Finastra, one of the largest fintech companies in the world, has established the Future of Banking Center of Excellence at Cyberport. The center presents digital banking technology to the 200 to 300 fintech companies working in Cyberport, allowing Finastra to identify new businesses in which it can invest. The center also includes an innovation sandbox, helping Hong Kong redefine the financial services landscape for the future.

“Cyberport is an ideal location for companies like Finastra, as it brings together the growing fintech, investor, startup, and business communities in Hong Kong. That opens up opportunities to collaborate with customers, fintechs, industry practitioners, and regulators to accelerate digitization in banking,” says Mr Wissam Khoury, senior vice president and general manager for Asia Pacific, Middle East and Africa for Finastra.