The Hong Kong Monetary Authority (HKMA) has launched two, new initiatives designed to support the development of fintech solutions within the Special Administrative Region.
In a keynote speech to delegates at Hong Kong’s 2016 Treasury Markets Summit, HKMA chief executive Norman Chan highlighted the risks attached to innovative, digital tools that become progressively more integral to the financial system.
“There are two aspects of safety,” he said: “the operational dimension and the investor-protection dimension. Just like the physical world, the digital space is full of risks. There is no lack of hackers and fraudsters who spare no time in stealing money from the innocent people.
“More fundamentally, the use of new technology does not in any way alter the nature of financial transactions. For example, the marketing and selling of financial or wealth management products through the internet or mobile devices carry the same, if not higher, risks as those sold through face-to-face channels.”
Chan asked: “Does the public accept less, or no, consumer or investor protection – such as suitability tests and product due diligence – simply because new digital technology is being used?
“I don’t think so, judging from the strong investor reactions after the collapse of many internet-based crowdfunding platforms on the mainland and overseas.”
However, he noted, “there are understandable concerns among the fintech industry that overly rigid or conservative regulations may stifle new technology and innovation.”
Furthermore, he said: “Many banks have also reported to the HKMA their intention to roll out very soon new technology with a view to providing more secure and efficient services to customers… So how do we in the HKMA deal with this issue?”
Chan explained that the HKMA’s regulatory philosophy is “to adopt a risk-based and technology-neutral approach” to fintech.
“Specifically,” he said, “we would endeavour to see through the nature and magnitude of the risks involved in a financial transaction or product without positive or negative discrimination on whether a new technology is used.”
As such, Chan revealed that his organisation would create a Fintech Innovation Hub, providing equipment and resources that enable banking and payments players to conduct proof-of-concept trials on potential new products and services.
Chan hopes that the Hub will have dual benefits: on the one hand, encouraging collaboration between players working in similar fields, such as biometric face- or voice-recognition tools; and on the other, finding applications for Big Data software or cutting-edge ‘regtech’ platforms that the HKMA itself could use.
In a complementary initiative, the HKMA will also launch a Fintech Supervisory Sandbox, giving innovators the ability to pilot new ventures with controlled customer groups and harvest real-time data on their effectiveness during test phases. The facility is aimed primarily at bank-based innovators.
Chan said that examples of supervisory requirements that may be relaxed in the Sandbox may include security protocols for electronic banking services and the timing of independent assessment prior to the launch of new technology services.
He added: “My HKMA colleagues stand ready to discuss with the banks individually on the appropriate supervisory flexibility that can be made available to them within the Fintech Supervisory Sandbox.”