Hong Kong Towards a Leading Global FinTech Hub

26 27 Regulation Part I: Examination of Seven Fintech Hubs While different states have their own fintech regulations and policies, the US seems to have started some strategic plans at the federal level. The DFS FastForward , 42 aiming to encourage fintech innovation for the post-COVID-19 economic recovery, was launched in June 2020 to reduce barriers and speed up the regulatory process for innovators. The pilot program Project Whitehall 43 was also established in the same year to assist insurtech innovators with regulatory questions. In 2019 and 2020, the US House of Representatives introduced multiple bills related to digital assets, including t he Securities Clarity Act and the Digital Commodity Exchange Act . However, it is not uncommon to see state regulators challenge the practices used at the federal level in hopes of keeping state control. Shanghai China is undergoing a transition in its regulatory approach for fintech. The country has been moving from its initially relaxed approach in fintech to a more pronounced regulatory approach for healthy market development and better risk management to combat fraud and problematic standards since the mid-2010’s. The Ezubo 44 case and the financial vulnerability found in other Peer-to-Peer (P2P) financing platforms prompted a number of regulatory initiatives proposed by the Chinese government to strengthen fintech sector regulation. The work on high-level rules specifically addressing the regulatory framework and principles in fintech began with 2015’s Guiding Opinions on Promoting the Sound Development of Internet Finance jointly published by the People’s Bank of China (PBOC) and nine other authorities. Since then, China has been stepping up its regulation on fintech. In 2019, the PBOC issued the Notice by the People’s Bank of China of Issuing the FinTech Development Plan (2019-2021), a three-year development plan to improve the top-down design of the fintech industry and strengthen risk controls, including an early warning regime on cross-market and cross-industry financial risks. In January 2021, the China Banking and Insurance Regulatory Commission drafted the Rules on the License Management of Banking and Insurance Institutions 45 for public consultations to standardize management rules of banking and insurance licenses, and to clarify relevant requirements. Following national-level regulatory principles, Shanghai – as one of China’s leading cities in fintech – also stepped up with its corresponding actions in fintech regulation. In May 2020, the PBOC Shanghai branch announced the launch of the Shanghai Fintech Innovation Regulatory Trial 46 for the city to become China's innovation application hub and technological research hub for fintech. Tokyo Japan has a comparatively loose regulatory approach towards fintech services. The Japan Financial Services Agency (JFSA) serves as a centralized regulator for all fintech issues. However, the country does not have a specific regulatory framework for fintech businesses and adopts liberal restrictions on banks’ investments in fintech. It focuses acutely on cryptocurrency exchange services and electronic payment intermediate services, and has been pushing for fintech innovation through the establishment of several laws relating to blockchain, cryptocurrencies, and APIs. Two important laws, the Banking Act and the Settlement Act , 47 were amended in 2016 to regulate virtual currency exchanges and to relax banks’ investments in fintech firms. In November 2017, the Tokyo Metropolitan Government (TMG) announced its plans to make Tokyo an unrivaled global financial center in the publication “Global Financial City: Tokyo” Vision. 48 One of the key initiatives is the establishment of accelerator programs. For example, leading companies in Japan’s financial sector will be matched with suitable foreign business companies and mentor foreign fintech startups. Zurich Zurich, the largest financial center in Switzerland, does not have any regimes that specifically address fintech regulation. The Financial Market Supervisory Authority (FINMA) is the integrated authority responsible for the regulation of financial services in Switzerland. While general Swiss laws and regulations are applied in the financial sector, there are no specific prohibitions that target fintech businesses or cryptocurrency- related activities. Two new financial market laws, the Swiss Financial Services Act and the Financial Institutions Act came into effect on 1 January 2020. 49 The former aims to reflect similar principles implemented at the EU level, and the latter introduces new measures for standardizing the licensing requirements for financial institutions. Together, the new laws are intended to enhance the financial market architecture and improve customer protection in financial services. Switzerland has opted for a technology-neutral and principle-based approach in its legislation, which engages market-led technological innovation. Depending on the specific business models of individual fintech firms, business activities could be regulated by the Banking Act, the Anti-Money Laundering Act, the Collective Investment Schemes Act, and the Financial Institutions Act , and comply with other regulatory requirements and ongoing compliance and reporting obligations. 42. New York State, Department of Financial Services. | Fast Forward (2021). | https://www.dfs.ny.gov/industry_ guidance/dfs_next/dfs_fastforward 43. New York State, Department of Financial Services: | Program to drive innovation financial services and products for new yorkers in the covid-19 era (Jun, 2020). | https://www.dfs.ny.gov/reports_and_publications/press_ releases/pr202006091 44. Reuters. | Leader of China's $9 billion Ezubao online scam gets life; 26 jailed (Sep 2017). | https://www.reuters . com/article/us-china-fraud-idUSKCN1BN0J6 45. China Banking and Insurance Regulatory Commission. | CBIRC Solicits Public Opinions on the Rules on the License Management of Banking and Insurance Institutions (Jan 2021). | https://www.cbirc.gov.cn/en/view/ pages/ItemDetail.html?docId=963439 46. China Banking News. | Shanghai officially launches work on fintech sandbox trial (May 2020). | https://www. chinabankingnews.com/2020/05/19/shanghai-officially-launches-work-on-fintech-sandbox-trial/ 47. KPMG. | Update on fintech development in Japan (Jun 2016). | https://assets.kpmg/content/dam/kpmg/ pdf/2016/06/jp-fintech-news-letter-201606.pdf 48. Tokyo Metropolitan Government. | “Global Financial City: Tokyo” Vision: Toward the Tokyo Financial Big Bang (Nov 2017). | https://www.seisakukikaku.metro.tokyo.lg.jp/en/pgs/2021/03/images/02-2_vision-en.pdf 49. IFLR. | New Swiss financial market rules: a guide (Sept 2020). | https://www.iflr.com/article/b1nf2fss3z7rk1/new- swiss-financial-market-rules-a-guide Common Strategies for Regulatory Environments While there is no single regulatory success recipe that works for all fintech hubs, we have identified these three common strategies across the examined hubs: 1. Moving towards a single, fintech-focused regulatory framework at the national level; 2. Integrating and adapting existing legislations that govern fintech activities; and 3. Consolidating functions of supervisory agencies to minimize the points of contact for industry stakeholders. We observe that regulators are still adjusting their institutional arrangements to adapt to constantly evolving fintech challenges and the innovation process.