Hong Kong Towards a Leading Global FinTech Hub

46 47 Government Support Part I: Examination of Seven Fintech Hubs In terms of public funds for fintech companies, Hong Kong targets all development stages from early startup stage, business scale-up, and expansion to global market. Different purposes such as R&D, talent acquisition, business development, fundraising and overseas expansion have been covered in the government’s financial support programs. One example is the Fintech Proof-of-Concept Subsidy (PoC) Scheme , a fintech-focused funding program launched by the FSTB in January 2021, to encourage the collaboration between traditional financial institutions and fintech companies and startups to develop PoC projects for possible innovative financial services solutions and products, 119 where each approved project can be granted up to HK$150,000 (US$20,000) funding support. Another example is the Global Fast Track Programme , a business-driven and collaboration-orientated program launched in August 2020, which allows eligible fintech companies to obtain government support up to US$2.6mn regardless of their pitching results. 120 This kind of public funding support given to the fintech and financial services industries has greatly facilitated the fintech development in Hong Kong so far, despite disruptions caused by the COVID-19 pandemic. Since the current term of government took office in 2017, it has allocated more than HK$100bn HONG KONG Government Support Insufficient Sufficient (US$12.8bn) to support the local Innovation and Technology (I&T) development. 121 The Hong Kong government had established the Innovation and Technology Fund (ITF) in as early as 1999 to encourage innovation and assist Hong Kong companies with technological upgrades and to embed more innovative ideas into their products. Currently, 17 funding schemes are available under the ITF , each of which has specific objectives and scopes, ranging from providing funding for I&T projects to supporting the development of the manufacturing and services industries in Hong Kong. 122 None of the fintech hubs examined in this report has offered the financial support to I&T and fintech development of a comparable scale and scope of Hong Kong’s ITF. However, according to a paper from the Hong Kong Legislative Council, only HK$2bn (US$258mn) out of HK$34bn (US$4bn) of the approved budget was released under the ITF in 2018-2019. 123 Hong Kong is among the first global financial centers to offer regulatory sandbox programs after London and Singapore. The Fintech Supervisory Sandbox (FSS) was launched in 2016, enabling banks and their technology partners to conduct pilot trials and collect data and other users’ feedback to improve their products and solutions before their launch, then upgraded to its 2.0 version in September 2017 to offer additional features to provide quick feedback and a single point of entry for HKMA’s, SFC’s and IA’s sandboxes for pilot trials of cross-sector fintech products. 124 As of February 2021, the FSS has enabled more than 200 fintech pilot trials and successfully facilitated more than 150 cases of collaborations between banks and fintech companies. 125 However, some fintech companies revealed that it was difficult to collect data because the financial industry is strictly compliant with data privacy legislation. It is necessary to increase the transparency of the regulatory sandboxes to ensure that banks understand how data could be retrieved in the sandbox environment, provide technical and compliance support for the sandbox participants, and consider providing incentives to smaller banks and commercial enterprises in order to motivate more participation in regulatory sandboxes. In addition to the sandboxes, the Hong Kong government has been an advocate of fintech. Hong Kong has identified different opportunities for fintech applications and started a number of projects in recent years to drive fintech adoption in the financial services and other industries. For example, the HKMA began their study on Distributed Ledger Technology (DLT) in 2016 and published two whitepapers in 2016 and 2017 respectively, 126 covering potential opportunities and risks in DLT applications, and made policy recommendations on related issues like legal and compliance issues, governance framework, risk management, etc. In 2018, the HKMA launched the Faster Payment System (FPS) for all banks and e-wallet operators in Hong Kong, which enabled their customers to make cross- bank and cross-e-wallet payments, in order to address the growing needs for more efficient digital payment services in the Hong Kong market. The FPS has been widely adopted among the financial sector and the public. As of April 2020, the FPS has recorded more than 4.6 million registrations and processed more than 65 million transactions with a total amount of more than HK$1tn (US$129bn). 127 The volume of transactions increased even more after the outbreak of the COVID-19 pandemic. In April 2020, the average daily turnover reached 264,000 real-time transactions, which is more than four times higher than the first full month of its launch in October 2018. 128 With a strong penetration and participation of 31 banks and 12 SVFs, 129 the FPS is a widely recognized fintech infrastructure that has improved Hong Kong’s overall innovation and technology adoption levels. The iAM Smart platform, formerly known as Electronic Identity (eID) and first announced in the 2017 Policy Address, is one of the key infrastructure projects for Hong Kong’s smart city development. 130 It was officially launched in December 2020, with the plans to enable around 110 government online services by the middle of 2021. 131 The platform provides a one-stop personalized digital government services platform for all Hong Kong residents to conduct government and commercial transactions online, and can facilitate customers’ remote on-boarding, identity verification, and more convenient and effective online transactions. The rapidly changing financial services and global technology environments leave the banks no choice but to explore advanced technologies to enhance their risk management and compliance to cope with their evolving banking business models. In such context, the HKMA announced a two-year roadmap to promote regtech adoption in the Hong Kong banking sector in November 2020, 132 and in June 2021 further announced its “Fintech 2025” strategy with five focus areas to drive the fintech development of Hong Kong. 133 The Hong Kong government has prioritized fintech development and introduced a range of regulation regimes, policy initiatives and funding schemes to promote fintech and facilitate its development in different financial perspectives. Both financial and non-monetary support from the government including different types of government support related to fintech ranging from funding schemes to sandboxes and other innovation initiatives are in place, but the effectiveness of each needs to be enhanced to maximize their benefits in order to contribute to the growth of fintech. Hong Kong as a Global Fintech Hub: Government Support 119. Cyberport. Fintech Proof-of-Concept Subsidy Scheme. https://pocsubsidy.cyberport.hk/en/ 120. CNBC. The Hong Kong Fintech: Fast Track. https://www.cnbc.com/advertorial/hong-kong-the-fintech-fast-track/ 121. The HKSARGovernment. Speech by S for ITat business luncheon in Seattle (English only) (with photo) (Sep 2019). https://www.info.gov.hk/gia/general/201909/17/ P2019091700500.htm 122. Innovation andTechnology Commission, The HKSARGovernment. About the Innovation andTechnology Fund. https://www.itf.gov.hk/en/funding-programmes/ index.html 123. Council Business Division 1, Legislative Council Secretariat. Panel on Commerce and Industry, Meeting on 21 April 2020, Updated background brief on the funding schemes under the Innovation andTechnology Fund (Apr 2020). https://www.legco.gov.hk/yr19-20/english/panels/ci/papers/ci20200421cb1-535-4-e.pdf 124. Hong KongMonetary Authority. Fintech Supervisory Sandbox (FSS). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/fintech- supervisory-sandbox-fss/ 125. Hong KongMonetary Authority. Fintech Supervisory Sandbox (FSS). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/fintech- supervisory-sandbox-fss/ 126. Hong KongMonetary Authority. Distributed Ledger Technology (DLT). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/research- and-applications/distributed-ledger-technology-dlt 127. Hong KongMonetary Authority. FPS Fights the Epidemic with You (Apr 2020). https://www.hkma.gov.hk/eng/news-and-media/insight/2020/04/20200424/ 128. Financial Services and the Treasury Bureau, The HKSARGovernment. Development of Financial Technologies (Jun 2020). https://www.legco.gov.hk/yr19-20/english/ panels/fa/papers/fa20200601cb1-706-2-e.pdf 129. Financial Services and the Treasury Bureau, The HKSARGovernment. Legislative Council Panel on Financial Affairs - Development of Financial Technologies (Jun 2020). https://www.legco.gov.hk/yr19-20/english/panels/fa/papers/fa20200601cb1-674-4-e.pdf 130. Hong KongMonetary Authority. Launch of iAMSmart (Dec 2020). https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and- circular/2020/20201229e1.pdf 131. Office of the Government Chief Information Officer. What is "iAMSmart"?. https://www.iamsmart.gov.hk/en/about.html 132. Hong KongMonetary Authority. The HKMA developed a two-year roadmap to promote Regtech adoption (Nov 2020). https://www.hkma.gov.hk/eng/news-and- media/press-releases/2020/11/20201103-3/ 133. Hong KongMonetary Authority. The HKMA Unveils “Fintech 2025” Strategy (Jun 2021). https://www.hkma.gov.hk/eng/news-and-media/press- releases/2021/06/20210608-4/