Hong Kong is regarded as a front runner in the race to become a leading global FinTech hub, vying against the likes of Silicon Valley, London and Singapore. On closer inspection, not everything may be as well as first thought with regards to Hong Kong’s ability to maintain a leadership position.
The Hong Kong Monetary Authority (HKMA), Hong Kong’s regulator of banking services, is not short of good intentions when it comes to promoting FinTech innovations. In 2016, the HKMA opened the Fintech Facilitation Office, whose mandate is to promote Hong Kong as a FinTech hub in the Asia-Pacific region. In addition, they also launched the FinTech Supervisory Sandbox to enable FinTech projects to experiment within live, controlled environments. However, this comes with the caveat in that only licensed banks can use the Sandbox – start-ups and non-licensed institutions are excluded.
This is a very different approach to that seen in the UK, and the restricted party invite list could well serve to limit the pace at which Hong Kong’s FinTech industry moves forward and its ability to effectively compete with other FinTech hubs, from both within the region and on the wider international stage.
Despite the HKMA’s activities, other financial regulators – including the Securities & Futures Commission (SFC), which regulates securities services, and the Insurance Authority (IA), which regulates insurance, have not yet developed similar pro-FinTech strategies for their areas of supervision, e.g. developing similar Sandbox regimes.
Changes within the securities space
We expect that this may change soon given some of the innovations happening across the securities space. Two examples include 8 securities and Aidiya. Aidiya is a Hong Kong-based hedge fund that is making use of Artificial Intelligence (A.I.) technology in its trading algorithms. Through utilising A.I. technology, both quantitative data such as technical trading patterns and economic indicators, as well as qualitative information such as news reports in multiple languages, are considered as a means to better inform securities trades.
8 securities is a social stock trading portal that enables like-minded investors to exchange ideas and to build private online investing circles with family and friends. A user can also receive notifications when a given number of fellow traders have placed the save order for a company’s shares. The company offers a robo-advisory service called Chloe to give wealth management advice. A user can inform Chloe of his or her personal financial situation and investment goals, then the robo-advisor would select from a pool of 10 EFTs for the user to invest in.
From our conversations with both incumbents and FinTechs, there is the view that Hong Kong may be facing a ‘Tech’ talent shortage that will dampen its ability to be a key regional hub. This view appears to be largely driven by the large tech companies tending to focus on nurturing and hiring sales and servicing personnel as opposed tech talent with proven R&D capabilities.
Despite Hong Kong’s entrepreneurship culture, a lack of tech talent could well mean that Hong Kong could become a fast adopter of new FinTech solutions as opposed to a first mover in FinTech deployment.
The mirroring of the HKMA’s approach by other regulators and potentially widening the invite list of who can play in the Supervisory Sandbox will only help strengthen Hong Kong’s FinTech capabilities and position. Also, to continue its journey to become a leading FinTech hub, any perceived talent shortages must be planned for and effectively overcome. Otherwise, it is foreseeable that Hong Kong will fall behind the pack to the benefit of regional peers such as Singapore and Australia.