Hong Kong Towards a Leading Global FinTech Hub

22 23 Regulation Part I: Examination of Seven Fintech Hubs Four Key Areas Influencing Fintech Hub Success Being an interplay between “finance” and “technology”, the fintech industry encompasses a large range of actors and activities. A fair, transparent, and up-to-date regulatory and licensing framework must be present to address both boosters and barriers to innovation. Regulation, sound policies, licensing regimes and guidelines should be adopted to facilitate the adaptation of the traditional financial sector in the “fintech era”. The government should act as a forerunner of technology by providing a favorable policy environment to the industry with innovation initiatives (e.g., implementation of open Application Programming Interface (API)). To provide a supportive regulatory environment, close connection with industry players and quick responses to market changes are essential. Building collaborative ties between regulators and other jurisdictions to strengthen a fintech hub’s international position is also a necessary task from the public agencies. Establishing and Refining Regulatory Frameworks According to Deloitte’s 2017 report 25 that analyzes 44 key cities in the world’s fintech ecosystems, regulation was one of six key indicators used to determine a city’s fintech performance. Ratings such as “better than average”, “good”, and “excellent” demonstrate the regulatory appropriateness of each fintech hub. London and Singapore were among the top cities leading in fintech regulation. Based on our observations, London and Singapore continue to operate with comparatively more adaptive regulatory frameworks, while the other examined hubs do not seem to have fintech-specific frameworks in place or are catching up with new regulatory initiatives to facilitate their emerging fintech needs. 25. Deloitte. | A tale of 44 cities – Connecting Global Fintech: Interim Hub Review 2017 (Apr 2017). | https://www2. deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-connecting-global-fintech-hub- federation-innotribe-innovate-finance.pdf Hong Kong London New York San Francisco* Good Excellent Better than average Better than average City Rating * San Francisco was included in the region of Silicon Valley, which was one of the 44 ecosystems rated. Shanghai Singapore Tokyo Zurich Better than average Excellent Better than average Good [ Exhibit 8 ] : Fintech Regulation Rating of Hong Kong and Selected Fintech Hubs (2017) Source: https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-connecting- global-fintech-hub-federation-innotribe-innovate-finance.pdf London UK regulators are recognized as one of the key facilitators of London’s position as a global fintech leader. The UK Government was the world’s first to launch a regulatory sandbox, and has been keen to encourage innovation and the use of technology in financial services. The UK divides its overall financial supervisory responsibilities between the Bank of England (BoE), who looks after the relationship between fintech and BoE’s policies and core functions, and the Financial Conduct Authority (FCA), who serves as a conduct supervisor. The regulators have been responding to fintech development with progressive policies, for example, FCA Innovation 26 and the BoE’s FinTech Accelerator. 27 However, there is no single regulatory framework to govern fintech in the UK. Instead, the level of regulation on fintech firms depends on the nature, scale and size of the business. Overall, the UK has a comprehensive system of regulation that covers most fintech sectors and evolving fintech activities. A large number of fintech activities such as issuing electronic money, providing payment services, and executing insurance and investment activities require licenses, 28 while 26. FCA Innovation provides supports to the firms which promote innovation through their business model and to en-courage the marketization of innovation financial service. For more details, please visit https://www.fca.org . uk/firms/innovation 27. BoE’s FinTech accelerator aims at collaborating with innovative firms to enhance the roles of bank, firms and markets in the fintech innovation cycle. For more details, please visit https://www.bankofengland.co.uk/-/media/ boe/files/fintech/fintech-accelerator-faqs 28. Lexology. | Fintech regulation in United Kingdom (2019). | https://www.lexology.com/library/detail. aspx?g=9c1c541b-842f-467f-9e52-ceb0c4a506a6 I. REGULATION