Hong Kong Towards a Leading Global FinTech Hub

38 39 Government Support Part I: Examination of Seven Fintech Hubs A year after the UK’s launch of the sandbox, Singapore became the first Asian country to set up regulatory sandboxes. The MAS created a flexible system with two types of sandboxes: one for more complex business models that may require customization; and the other a fast-track version for low-risk projects that are well understood by the market. 89 Clear guidelines 90 from application to exit of the sandbox including examples and explanation of different sandbox stages and information about the sandbox applicants can be found on the MAS website, which provides clarity and transparency. The sandbox also allows fintech firms to have more flexibility. For example, some of the legal and regulatory requirements during the sandbox period were relaxed to suit the needs of fintech firms. Three companies have already exited the MAS Sandbox and Sandbox Express in late 2020 and early 2021, and two firms are expected to graduate from the schemes in mid-2021. In 2018, Japan launched its regulatory sandbox as a tool to reform previous systems to improve the business and regulatory environments. 91 Though it was not a sandbox only for the fintech industry, it naturally attracted fintech companies, as IoT, big data and AI had rapidly generated innovations in recent years. As of February 2020, 129 companies were operating under the sandbox framework and conducting fintech, insurtech, smart living, healthcare and transportation experiments. 92 In 2019, the US Department of the Treasury released the Fourth Report of a series on the Administration’s Core Principles for Financial Regulation, and noted that replicating a regulatory sandbox approach in the US would become complicated because of the inherent fragmentation of regulations in the country. Most states have securities commissioners and banking regulators. Arizona was the first state to offer a fintech sandbox in 2018, followed by Nevada, Utah, and Wyoming. In September 2020, Florida and West Virginia began to offer fintech sandboxes, 93 making them the fifth and sixth out of fifty states to join in the support for fintech innovation. To date, there is no federal fintech sandbox in the US. According to recent research on the regulatory sandbox’s impact on the fintech industry in nine jurisdictions including the UK, Singapore, Hong Kong, and Japan, 94 the introduction of regulatory sandboxes increased the size of venture investments in fintech companies compared with those areas where a regulatory sandbox has not yet been introduced. While it lacks sufficient data for us to determine the effectiveness of sandboxes, international interest in creating regulatory sandboxes as a means to encourage fintech innovation remains strong. Going forward, regulators need to develop appropriate policies and guidance to accompany well-designed sandboxes to reap the benefits of innovation, while safeguarding the financial system and also protecting both businesses and individuals. 89. Monetary Authority of Singapore (MAS). | Overview of Regulatory Sandbox. | https://www.mas.gov.sg/ development/fintech/regulatory-sandbox 90. Monetary Authority of Singapore (MAS). | Fintech Regulatory Sandbox Guidelines (Nov 2016). | https://www.mas. gov.sg/-/media/MAS/Smart-Financial-Centre/Sandbox/FinTech-Regulatory-Sandbox-Guidelines-19Feb2018.pd f?la=en&hash=1F4AA49087F9689249FB8816A11AEAA6CB3DE833 91. IFLR. | Japan: Sandbox reform (Jul 2019). | https://www.iflr.com/article/b1lmxcdgyvbjv4/japan-sandbox-reform 92. Harvard Business Review. | How the Japanese Government’s new sandbox program is testing innovations in mobility and technology (Feb 2020). | https://hbr.org/sponsored/2020/02/how-the-japanese-governments-new- sandbox-program-is-testing-innovations-in-mobility-and-technology 93. https://nativefinance.org/news/more-states-establishing-regulatory-sandboxes-for- fintechs/#:~:text=Florida%20and%20West%20Virginia%20have,that%20offer%20such%20a%20solution 94. Goo, Jayoung James, and Joo-Yeun Heo. “The Impact of the Regulatory Sandbox on the Fintech Industry, with a Discussion on the Relation between Regulatory Sandboxes and Open Innovation.” | Journal of Open Innovation: Technology, Market, and Complexity 6, no. 2 (2020): 43. | https://doi.org/10.3390/joitmc6020043. Fintech Hub Sandbox available Participants of GFIN’s cross- border testing Sandbox jurisdiction Authority Launch date of first sandbox in jurisdiction Sandbox features London Yes Yes UK FCA May 2016 1 sandbox with multiple cohorts New York No No US Varies by States Mar 2018 (Arizona’s FinTech Sandbox) Only 6 states (Arizona, Nevada, Utah, Wyoming, Florida, and West Virginia) offer fintech sandboxes as of September 2020 San Francisco No No Shanghai Yes No China PBOC Dec 2019 Gradually expanding to 9 cities (Beijing, Shenzhen, Shanghai, Guangzhou, Suzhou, Chongqing, Hangzhou, Xiong’an New Area, and Chengdu) as of July 2020 Singapore Yes Yes Singapore MAS Nov 2016 Offers a fast-track route of the scheme (Sandbox Express, launched in Aug 2018) Tokyo Yes No Japan Government of Japan Jun 2018 Introduced as a mechanism for regulatory reform to facilitate the realization of innovative technologies and business models in Japan, therefore covers a wide range of industries including financial services, healthcare, mobility, and transportation. Zurich Yes No Switzerland Swiss Federal Council Aug 2017 2 sandboxes (Unregulated Sandbox and Innovator License) for persons who accept funds from the public of up to a total of CHF 1mn. The activities are not subject to supervision by FINMA and so do not require authorization, therefore deposits are not covered by the Swiss depositor protection regime. [ Exhibit 12 ] : Fintech Sandboxes in the Selected Hubs and their Relevant Jurisdictions