Hong Kong Towards a Leading Global FinTech Hub

35 Government Support 34 Part I: Examination of Seven Fintech Hubs Hong Kong as a Global Fintech Hub: Regulation Although Hong Kong does not have an overarching fintech-specific regulatory framework, fintech business operations are subject to existing financial laws and regulations. Financial activities in Hong Kong are highly regulated. Most fintech-related businesses are licensed by the Securities and Futures Commission (SFC) under the Securities and Futures Ordinance (SFO). Fintech organizations that belong to specific industries such as banking and insurance are governed by the Hong Kong Monetary Authority (HKMA) and the Insurance Authority (IA) respectively. Hong Kong has a regulatory regime that follows international practice. 70 Although without a fintech- specific regulatory framework, it uses a supportive supervisory approach to keep innovation abreast. 71 Over the years the regulators have been proactive and responsive with the implementations of various regulatory initiatives to support the needs arising from the ever-changing fintech environment. Regulators in Hong Kong generally adopt a risk-focused, technology-neutral and disclosure-based-approach. The risk-focused and technology-neutral nature helps to avoid premature regulation hindering innovation, while at the same time enables greater business flexibility to fintech products and solutions without posing significant risks to the financial system. A disclosure-based regime ensures customers are protected: fintech companies are required to disclose accurate and reliable information to help people make informed decisions before selecting financial products and services. 72 Hong Kong’s financial regulators are also proactive in establishing fintech collaborations with both its national and international counterparts, which is vital to sustain Hong Kong’s position as a global financial center. The city plays an important role as a bridge between Mainland China and the rest of world. It benefits from a close relationship and proximity with Mainland China, and is also renowned for its highly developed financial ecosystem, renowned professional services, as well as being an important trade center and aviation hub to the world. On the international front, Hong Kong works with regulators around the world to maintain its high standards as a financial city, and be at the forefront of finance and technology innovations. HONG KONG Regulation Insufficient Sufficient 70. Research Office, Legistaive Council Secretariat. | Regulation of financial technolog in selected places (May 2019). | https://www.legco.gov.hk/research-publications/english/1819in14-regulation-of-financial-technology-in- selected-places-20190528-e.pdf 71. Research Office, Legistaive Council Secretariat. | Regulation of financial technolog in selected places (May 2019). | https://www.legco.gov.hk/research-publications/english/1819in14-regulation-of-financial-technology-in- selected-places-20190528-e.pdf 72. Regarding disclose-based regulatory regime, for more details, please visit Mayer Brown. | Hong Kong's Disclosure Based Regulatory Regime Takes Further Shape (Feb 2009). | https://www.mayerbrown.com/en/ perspectives-events/publications/2009/02/hong-kongs-disclosure-based-regulatory-regime-take 73. Around 1,400 fintech firms from 169 countries reported a year-on-year increase in transaction numbers and volumes of 13% and 11% respectively in the first two quarters of 2020. For more details, please visit CCAF, World Bank and World Economic Forum (2020), The Global Covid-19 FinTech Market Rapid Assessment Report, University of Cambridge, World Bank Group and the World Economic Forum. https://www.jbs.cam . ac.uk/wp-content/uploads/2021/03/2020-ccaf-global-covid-fintech-market-rapid-assessment-study-v2.pdf 74. Normally innovators would have financial challenge at the earliest or earlier stages of innovation. At the same time, external financing will not be easily available for the innovators as the private investors will not invest until the innovation has been reaching a commercially viable level. As a result, public financing from governments would alleviate seed financial issues at the early stage of innovation. For more details, please visit United Nations Conference on Trade and Development. Investing in innovation for development (Feb 2013). https:// unctad.org/system/files/official-document/ciid21_en.pdf 75. Monetary Authority of Singapore. Cybersecurity Capability Grant (Sept 2018). https://www.mas.gov.sg/ schemes-and-initiatives/fsti-cybersecurity-capability-grant 76. Monetary Authority of Singapore. Digital Acceleration Grant - Financial Institutions and FinTech Firms. https:// www.mas.gov.sg/development/fintech/digital-acceleration-grant 77. Monetary Authority of Singapore. Artificial Intelligence and Data Analytics Grant (Jan 2019). https://www.mas . gov.sg/schemes-and-initiatives/Artificial-Intelligence-and-Data-Analytics-AIDA-Grant 78. Monetary Authority of Singapore. Financial Sector Technology and Innovation (FSTI) 2.0 (Aug 2020). https:// www.mas.gov.sg/-/media/MAS/News/Media-Releases/2020/MAS-Infographic_-Enhanced-FSTI.pdf II. GOVERNMENT SUPPORT The fintech sector has gained considerable traction in recent years with public support and investment, and its global growth continues despite COVID-19. 73 The industry will need even more support as it sets new priorities for the post-pandemic world. Aside from regulatory policies, the government can facilitate the development of the fintech industry by: (1) providing financial support through public funding; (2) organizing programs that encourage innovation and entrepreneurship in the industry; and (3) providing opportunities that give the fintech industry access to experts’ advice, the latest information, and public services. Public Funding Approach Innovation is the backbone of fintech, and funding is vital for promoting and realizing innovation, especially in the earlier stages. 74 Fintech-specific financial support is usually a combination of public and private funding, but with more reliance on private funding to varying degrees. For Switzerland, public funding is minimal, as most of the financial support for fintech is from private associations, and is primarily financed by major financial institutions. In contrast, Singapore is at the other end of the scale with its government dedicating vast resources to drive fintech development. The diversity of fintech clusters and activities supported by the Singapore government reflects its strong commitment to national fintech development. It provides different subsidies targeted at different types of fintech. For example, the Cybersecurity Capability Grant provides up to a S$3mn (US$2.2mn) subsidy per cybersecurity project; 75 the Digital Acceleration Grant offers up to S$120,000 (US$89,651) per entity to support smaller scale financial institutions and fintech companies in adopting technology solutions; 76 and the AI and Data Analytics Grant provides funding capped at S$1.5mn (US$1.1mn) for unique AI use cases. 77 To foster an ecosystem in innovation, the MAS allocated another S$250mn (US$187mn) in special funds under its Financial Sector Technology and Innovation (FSTI) 2.0 Scheme to be valid until March 2023, which is on top of the S$225mn (US$168mn) from the FSTI 1.0 scheme that was introduced in 2015. 78 The role of MAS as a central coordinator is helpful for fintech companies to access information on public funding opportunities. It also allows Singapore to more effectively organize specific schemes for the fintech industry.