Hong Kong Towards a Leading Global FinTech Hub

78 79 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Based on our observations in Part I, some of the current practices in the Hong Kong fintech industry are likely to enhance its ability to achieve the qualities of a leading global fintech hub. We identify 10 opportunities which can support Hong Kong’s ambition to become a leading global fintech hub. We group these opportunities into three action areas: high-level strategy, incentives to innovate, and talent building as outlined below: High-level Strategy 1. Establish a Hong Kong Fintech Ecosystem Committee, to streamline the development of the Hong Kong’s fintech ecosystem and coordinate with different stakeholders, to support the thematic policy areas outlined below. 2. Establish a fintech infrastructure strategy focused on product development and financial inclusion, reinforced by secure, privacy-respecting fintech infrastructure and widespread adoption. 3. Transform Hong Kong into a regional fintech sandbox which attracts local and regional stakeholders to develop and grow fintech products and solutions in Hong Kong. 4. Prioritize development of the Commercial Data Interchange (CDI) as part of HKMA’s Fintech 2025 strategy to improve the data landscape to enhance financial development, while protecting customers’ rights to consent and privacy. Incentives to Innovate 5. Improve the effectiveness and impact of public funding on different stages of innovation. 6. Establish a centralized incubation funding system by consolidating the resources from public and private sectors. 7. Review, evaluate and promote the tax deduction policy for eligible R&D activities to increase innovation in fintech R&D. Talent Building 8. Create a compulsory internship scheme specific to fintech students to prepare students to meet future market demand. 9. Establish a stronger certification link between Continued Education Fund (CEF), Qualification Framework (QF) and internship schemes to promote on-the-job training opportunities to the existing workforce to help meet current market demand. 10. Review and evaluate the overseas talent scheme and allow more flexibility, including remote work approval, for fintech companies to hire overseas fintech talent. Within each of the opportunity areas, we outline our observations, recommended actions and objectives. Our observations are based on the findings from the preceding section which investigates the different facets of successful fintech policies and strategies across the selected economies and compared to these developments in Hong Kong. The comparison is used to derive a set of steering objectives which frames how Hong Kong can capitalize on the opportunity. These objectives are subsequently followed by more specific recommended actions which are intended to plug the gap between the observed international best practices and the situation in Hong Kong. High-level Strategy With new regulations and facilitations, policy initiatives, and funding schemes, the Hong Kong government has been giving substantial support to the Hong Kong fintech sector, prioritizing fintech as one of the key areas for the financial industry’s future development. Hong Kong was one of the early adopters to embrace fintech by launching a regulatory sandbox. 282 It was also the first mover to issue virtual banking licenses in Asia. 283 Among the four pillar industries in Hong Kong, the financial services sector has contributed most significantly to the city’s economy. In 2019 alone, it accounted for more than 21% of Hong Kong’s GDP and provided over 270,000 jobs. 284 Given the consensus by both the public and private sectors in recognizing fintech as one of the keys to maintaining the strength of the financial services sector, growing demand for talent with skills in AI and big data is expected for fintech and other industries. 285 To bring Hong Kong’s status to the top tier among global fintech hubs, the Hong Kong government will need to develop a high-level strategy which strikes a balance between promoting innovation and encouraging effective competition while protecting clients and investors via its regulatory regimes. A clear, forward-looking, and flexible regulation framework with precise policies and procedures targeted in facilitating the city’s fintech development must be in place. We have made four observations regarding policies and regulations and provide subsequent recommendations which are intended to develop a rich ecosystem welcomed by all fintech stakeholders. Policy objectives Recommended action Industrial insights Policy initiatives Research Observations [ Exhibit 20 ] : The Relationship between Observations and Recommended Actions 282. Hong Kong Monetary Authority. | Fintech Supervisory Sandbox (FSS) (May 2021). | https://www.hkma.gov.hk/ eng/key-functions/international-financial-centre/fintech/fintech-supervisory-sandbox-fss/ 283. Hong Kong Monetary Authority. | Virtual Banks (May 2021). | https://www.hkma.gov.hk/eng/key-functions/ banking/banking-regulatory-and-supervisory-regime/virtual-banks/ 284. HKTDC Research. | Financial Services Industry in Hong Kong (Feb 2021). | https://research.hktdc.com/en/ article/MzEzOTI4MDY3 285. Tang, H. (2021). | Hong Kong’s Urgently Needed Third Economic Transformation. In Hong Kong Economic Policy Green Paper 2021 (pp. 3-16). | https://www.fbe.hku.hk/wp-content/uploads/2021/02/green_papers_2021_eng.pdf Ten Opportunities for Strengthening Hong Kong’s Position as a Global Fintech Hub