Chapter 11 regulatory initiatives on fin tech

Chapter 11
Regulatory Initiatives
on FinTech
The Presentation Slides for Teaching
Financial Regulations and Compliance Practices
Website : https://sites.google.com/site/quanrisk
E-mail : quanrisk@gmail.com
Copyright © 2019 CapitaLogic Limited

Declaration
 Copyright © 2019 CapitaLogic Limited.
 All rights reserved. No part of this presentation file may be
reproduced, in any form or by any means, without written
permission from CapitaLogic Limited.
 Authored by Dr. LAM Yat-fai (林日辉),
Director, CapitaLogic Limited,
Adjunct Professor of Finance, City University of Hong Kong,
Doctor of Business Administration,
CFA, CAIA, CAMS, FRM, PRM.
Copyright © 2019 CapitaLogic Limited 2

Outline
 What is FinTech?
 FinTech in Hong Kong
 Regulatory initiatives

Major FinTech companies in China

What is FinTech?
FinTech
= Financial Technology
= Finance + Technology?

What is FinTech?
 “FinTech refers to the
application of information
and communication
technology in the field of
financial services”

Another definition
 From Professor Patrick Schueffel, School of
Management Fribourg, University of Applied
Sciences Western Switzerland
“A new financial industry that applies technology
to improve financial activities.”

Another definition
 From National Digital Research Centre in
Dublin, Ireland
“For broader applications of technology in the space to
 front-end consumer products
 new entrants competing with existing players
 new paradigms such as Bitcoin”

Characteristics of FinTech
Using advanced technology
To facilitate a new business model
With a potential to challenge,
compete and/or replace traditional
financial institutions in delivering
financial services

FinTech – A giant killer

Top 10 market cap 2007

Top 10 market cap 2017

Financial system
Financial
institutions

Bitcoin
 Total liberalization of the currency market
 No government
 No bank
 No exchange
 No settlement

Dis-intermediation
and re-intermediation
FinTech

FinTech categories
Application
 Stored value facility
 Virtual banking
 Peer-to-peer lending
 Crowdfunding
 Robo advisory
 Algo trading
 Cryptocurrency
Umbrella
 Big data analytics
 Artificial intelligence
 Open API
 Distributed ledger system
 Cyber security
 Compliance technology
 Supervisory technology

Outline

FinTech companies

Budget speech 2015 - 2016
 Being an international financial centre with years of
experience in technology, Hong Kong is an ideal place for
developing financial technologies.
 I have asked the Secretary for Financial Services and the
Treasury to set up a steering group to study how to develop
Hong Kong into a financial technology hub together with
industries, research and development institutions as well as
regulatory authorities.

 Implement steering group’s suggestions to
promote FinTech
 InvestHK to set up dedicated team to help
relevant enterprises establish presence in Hong
Kong
 Cyberport to provide 3,000 m2 dedicated space
and launch designated programme
 HKMA, SFC and IA to set up dedicated
FinTech platforms

 Set up a HKD 2 bn Innovation and Technology
Venture Fund
 HKD 4.4 bn to expand Science Park in stages
 Cyberport to earmark HKD 200 mn to invest
in start-ups

 Apply FinTech and encourage the industry to
make good use of the FinTech Supervisory
Sandbox
 HKMA to develop a Faster Payment System to
further enhance financial infrastructure

Steering Group on
Financial Technologies
 To advise the Financial Secretary on
 Economic and business opportunities provided by
the development of FinTech for Hong Kong
 Potential and existing gaps of developing Hong
Kong into a FinTech hub
 The measures needed to promote Hong Kong as
such a hub

Report of the Steering Group on
Financial Technologies
 Promotion
 Facilitation
 Regulations
 Funding
 Talents

Promotion
 To formulate a clear vision to underline Hong
Kong’s commitment in developing FinTech
and our position as a launchpad for FinTech
companies with regional and global ambitions
 To organise an annual premier FinTech event
and competitions to focus stakeholders on the
potential of our FinTech ecology and attract
talents locally and from outside Hong Kong

Facilitation
 To establish a one stop office to provide targeted assistance
to start-ups, leverage the office in the overall branding for
Hong Kong as a FinTech hub as well as take part in
overseas events and organize roadshows to showcase
different support measures available in Hong Kong
 To establish a FinTech themed programme to complement
existing facilitation programmes
 To attract financial institutions to locate or start their
accelerator programmes and laboratories in Hong Kong
 To raise Hong Kong’s position as a hub for applying and
setting standards for cutting-edge FinTech technologies
such as cyber security and blockchain

Regulations, funding and talents
 Regulations
 To establish dedicated contact points at financial
regulators to help the FinTech community better
understand our regulatory landscape
 Funding
 To improve dissemination of information on funding
sources
 Talents
 To encourage young talents to consider entering the
FinTech sector
 To enhance dissemination of information on immigration
policy for talents outside Hong Kong

Outline

Hong Kong Monetary Authority

Securities and Futures Commission

Insurance Authority

Regulatory initiatives
 Industry liaison
 Research and application
 Regulatory interface
 Talent development

Industry liaison
 Events and seminars
 Haccelerator programme
 Shenzhen-Hong Kong Fintech Award
https://ffo.hkma.gov.hk/pillars/industry-liaison

Research and application
 Trade finance
 Open application programming interface
 Distributed ledger technology
 Cyber security fortification initiative
 Central bank digital currency
https://ffo.hkma.gov.hk/pillars/research-and-
application

Regulatory interface
 HKMA-ASTRI Fintech innovation hub
 The Fintech supervisory sandbox
 Industry survey
 Regulatory dialogues
https://ffo.hkma.gov.hk/pillars/regulatory-
interface

Talent development
 FinTech career accelerator scheme

Fintech supervisory sandbox
 Boundary
 Clear definitions about the scope and phases of the pilot trial, the timing and
termination arrangements
 Customer protection measures
 Measures for protecting the interests of customers during the trial, which
generally cover the selection of customers who understand the associated risks
and voluntarily join the trial, complaint handling, compensation of any
financial losses by customers, and arrangements for customers to withdraw
from the trial
 Risk management controls
 Compensating controls for mitigating the risks arising from less than full
compliance with supervisory requirements and the risks posed to the bank’s
production systems and other customers
 Readiness and monitoring
 Readiness of the systems and processes involved in the trial and close
monitoring of the trial.

Fintech supervisory sandbox
Technology involved Number of pilot trials
Biometric authentication 7
Soft token 4
Chatbot 2
Distributed ledger technologies 5
API 3
Others (e.g. notification service
via social media platforms)
11
Total 36

PwC Fintech Survey 2017
 What is the largest
challenge to
FinTech?

PwC Fintech Servey 2017
 Does your firm have difficulty in hiring
FinTech talents?

Academic Fintech programmes
 Oxford
 Oxford Fintech Programme
 https://getsmarter.sbs.ox.ac.uk/oxford-fintech-
online-programme-hm/
 HKU
 FinTech Massive Open Online Course
 https://www.hkufintech.com/

Reference
 SGFT, 2016. Report of the Steering Group on
Financial Technologies.

Chapter 11 regulatory initiatives on fin tech

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