Hong Kong Towards a Leading Global FinTech Hub

5 4 Executive Summary Executive Summary As a leading international financial center, Hong Kong already has many elements in place to ensure its position as a successful global fintech hub. In this report, we examine seven other economies – London, New York, San Francisco, Shanghai, Singapore, Tokyo and Zurich – that are also in leading positions as global fintech hubs. By reviewing what strategies, actions and non-actions they have taken that have resulted in their current positions in global fintech, we hope to gain insight as to what steps Hong Kong can take to ensure its place among the leading global fintech hubs. With the appropriate support and guidance from the government and regulators, fintech has tremendous potential to further strengthen Hong Kong’s economy and outlook for the future. Four Major Areas of the Fintech Ecosystem Regulation, Government Support, Business Environment, and Talent are four areas of the fintech ecosystem that greatly impact its long term development. They are not completely separate, as some issues could fall into one or more of these domains. In addition, more research and development is required for all four of these areas in order to maintain innovation and growth in the fintech industry. 1. Regulation The comparative flexibility in regulation of London and Singapore have contributed to these two economies’ strong positions. London is well known for its sandboxes, while Singapore has made great strides over recent years by diligently working to simplify its previously complicated regulation framework. In general, most of the examined hubs appear to be integrating existing acts that govern fintech activities and consolidating the functions of supervisory agencies. Streamlining, reducing regulatory complexity, and creating more transparency between supervisory agencies appear to be common themes. Although Zurich does not have a specific regime to address fintech regulation, recent financial market laws passed were aimed at standardizing licensing requirements and further increasing customer protection in financial services. Internationally, finance and economic organizations such as the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS) have issued guidance for national authorities who regulate and supervise fintech-related activities. Participation in international organizations not only helps foster good relations, but can also create additional opportunities for local economies and businesses. From our research across the selected hubs, we would expect regulators to engage with fintech stakeholders and respond to industry needs more before they formulate regulatory policies. Although Hong Kong has no fintech-specific regulatory framework, fintech business operations are subject to existing financial laws and regulations. Financial activities in Hong Kong are highly regulated, and its disclosure-based regime ensures that fintech companies provide accurate information to help customers make fully informed decisions about products, services, and digital-identity measures. Preface Preface Fintech is a dynamic, disruptive, and game-changing force that has transformed the attitudes and behaviors of businesses and individuals towards financial products and services. Its growing contribution to the global economy speaks for its importance. Despite a challenging year for most industries in 2021, with fintech being no exception, global fintech investments was the third highest year on record. 1 While COVID-19 may have substantially impacted individuals and companies in many ways, it has also accelerated the wide-range acceptance and adoption of digital solutions. 2 The fintech industry made a strong comeback in 2021, with global fintech investments recording a remarkable US$98bn in the first half of the year. 3 It is expected that fintech will continue to be resilient in the coming years. As a well-established international financial center with 96% of its adult population already online 4 and a Digital Competitiveness ranking second only to the US, 5 Hong Kong naturally has a competitive edge to become a successful global fintech hub. With a focus on leveraging Hong Kong’s strengths to further its position as a leading global fintech hub, we have devised a list of strategic recommendations for Hong Kong. Using a systematic approach to study a number of fintech hubs from around the world, we address the following questions: • What key features identify a “global fintech hub”? • What have different international hubs done to get to where they are today? • What are Hong Kong’s strengths and competitive advantages for becoming a leading global fintech hub? • What are the key areas Hong Kong needs to focus on for its fintech ecosystem to grow and flourish? We hope the findings of this study and the strategic recommendations presented in this report offer useful insights and perspectives to all participants in the Hong Kong fintech ecosystem, and together, propel Hong Kong into a position of being a sustainable and vibrant global fintech hub. Kar Yan Tam School of Business and Management The Hong Kong University of Science and Technology 1. KPMG. | Pulse of Fintech H2’20 (Feb 2021). | https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/02/pulse-of- fintech-h2-2020.pdf 2. Fu, Jonathan and Mishra, Mrinal. | “Fintech in the Time of COVID-19: Trust and Technological Adoption During Crises” Swiss Finance Institute Research Paper No. 20-38 (December 23, 2020). | https://ssrn.com/ abstract=3588453 or http://dx.doi.org/10.2139/ssrn.3588453 3. KPMG. | Pulse of Fintech H1’21 (Aug 2021). | https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/08/pulse-of- fintech-h1.pdf 4. Comsore. | Global Perspectives: Digital and CTV trends to watch in 2021 (Dec 2020). | https://www.comscore.com/ Insights/Presentations-and-Whitepapers/2020/Global-perspectives-Digital-and-CTV-trends-to-watch-in-2021 5. IMD. | The essential factors behind digital competitiveness. | https://www.imd.org/news/updates/China-US- pursuing-markedly-different-but-equally-competitive-digital-transformations-WCC/4