Hong Kong Towards a Leading Global FinTech Hub

86 87 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Opportunity 2 Observation: Common and widely accessible data standards are crucial infrastructure for fintech development. Although the HKMA has been promoting a common financial data standard, an increase in market coverage and industry adoption of fintech products would be beneficial. Objective: To promote the development of fintech and financial inclusion, a widely adopted, secure, and privacy-respecting fintech infrastructure is essential to reinforce Hong Kong’s position as an international fintech hub. Recommended action: Establish a fintech infrastructure strategy and action plan. 295. The five R&D centers are Automotive Platforms and Application Systems R&D Centre (APAS), Hong Kong Applied Science and Technology Research Institute ("ASTRI"), Hong Kong Research Institute of Textiles and Apparel (HKRITA), Logistics and Supply Chain MultiTech R&D Centre (LSCM) and Nano and Advanced Materials Institute (NAMI). For details, please visit https://www.itc.gov.hk/en/resources/res_dev_centre.html Since the 2020 global lockdown, technology has increased in importance both locally and around the world, as the routines of our daily lives were greatly changed. Financial institutions that have been adopting cutting-edge technology solutions are in a better position to provide financial services to their customers even if they have had to adopt remote work practices for a considerable duration. Fintech infrastructure is regarded as an indispensable element to maintain fintech applications. Both hard and soft infrastructure play vital roles in fostering the development of fintech. Science Park, Cyberport, the Data Technology Hub and the five R&D Centres 295 under the Hong Kong R&D Centre Programme are the key hard infrastructures to facilitate innovation and technological breakthroughs in the city. Meanwhile, HKMA has contributed to the development of soft infrastructure for the city’s development by implementing policy initiatives such as Open API for the banking sector, a Fintech Supervisory Sandbox, the Faster Payment System (FPS), and the Commercial Data Interchange (CDI). They have put equal importance on distributing resources to both hard and soft infrastructures to ensure fintech products and solutions reach the marketization and public adoption stage. The fintech industry and its stakeholders look to the government to commit more public resources to soft infrastructure to improve its impact on market development. The following ten soft fintech infrastructures are important examples to foster a more comprehensive digital environment for fintech development: 1. Digital ID trust framework 2. Data sharing platform, e.g., Open API, CDI 3. Digital identity (Know Your Customer), e.g., iAM Smart, for citizen and company authentication 4. Payment infrastructure, e.g., FPS 5. Cloud infrastructure 6. Regional sandbox infrastructure 7. Credit bureau standard at both individual and corporate level 8. Crypto and digital assets infrastructure 9. Digital certificate infrastructure 10. IoT and big data infrastructure We look at digital identity, ID trust framework and open API as examples. The events of 2020 have accelerated the development of digital transformation at an unprecedented rate. In this digital age, fintech solutions related to digital identity (for payment transactions, virtual banking, insurtech, healthtech as well as smart public services) are significant for both public and private services. Therefore, digital identity is looked upon as an enabler for digital transactions in an increasingly digital economy. We need to examine the feasibility of innovating applications in both the public and private sectors. However, an identity infrastructure in Hong Kong has yet to be developed across the public and private sectors that keeps pace with the fast-growing digital economy. If common data standards can be implemented more widely, it could serve as a foundation for more significant improvement in digital financial services in Hong Kong. The Hong Kong government has made good progress in adopting common digital identity and data infrastructure such as the iAM Smart platform, Open API and the Commercial Data Interchange (CDI) initiatives, and adoption of a digital payment system such as the Faster Payment System (FPS). These are good examples of cross-government cooperation on digital IDs and regtech development. In Hong Kong, data protection is governed by the Personal Data (Privacy) Ordinance (PDPO). It regulates the collection, use and handling of personal data under six data protection principles. However, unlike the more stringent regulations adopted around the world, PDPO lacks a mandatory data breach notification system. Fintech companies in Hong Kong have proven their potential to incorporate big data and data analytics skills to generate smart data and AI financial services. In this digital age, digital identity is widely considered to be an important foundation of fintech infrastructure. Fintech startups have expressed that they have not been granted access to public data and cannot compete in product development with large firms that have customer data. The standard of the government’s open API platform should be raised by incorporating the needs of fintech startups and companies, while fintech companies can utilize open information to offer match-the-market products tailored to customers’ personal needs. In a nutshell, the government could consider the following to achieve the abovementioned objectives. • Require all government bureaus, departments and related units to provide public data regularly by utilizing Open API; • Collaborate with the fintech sector at all innovation stages. As the fintech sector requires the incorporation of digital identity as part of product development, their opinions on how to incorporate digital identity for all innovation stages would be essential for producing better cross-government and cross-sector cooperation on digital IDs; • Establish appropriate platforms and mechanisms in compliance with the laws for public-private sharing of data.