Hong Kong Towards a Leading Global FinTech Hub

90 91 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong 303. Hong Kong Monetary Authority (2020). | What’s next in our fintech journey. | https://www.hkma.gov.hk/eng/ news-and-media/speeches/2020/11/20201102-1/ 304. Hong Kong Monetary Authority (2021). | The HKMA hosts virtual symposium on Commercial Data Interchange. | https://www.hkma.gov.hk/eng/news-and-media/press-releases/2021/07/20210722-5/ Opportunity 4 Observation: The Hong Kong government and financial sectors have strongly supported technologies for financial development. The HKMA is committed to initiating a Commercial Data Interchange (CDI) as one of the major initiatives named under its Fintech 2025 strategy. As Hong Kong’s fintech data sharing infrastructure currently lacks efficiency and has been a limiting factor in fintech development, the CDI is a welcome initiative. Objective: To improve the data landscape, an essential foundation for understanding and encouraging beneficial financial activities, while at the same time protecting customers’ rights to consent and privacy. Recommended action: Formulate protocols and standards to strengthen a market development mandate for secure and privacy-respecting data access, sharing, and transmission. With the support of the Hong Kong government, banks and other financial institutions are working on improving their digital platforms to enhance efficiency and improve customer service. While some larger banks are currently using their in-house big data set to verify customers’’credit history, 303 smaller banks, innovators and entrepreneurs are not able to perform this kind of assessment, as they lack in-house data and resources. Thus, they face obstacles when they want to access, validate, and transmit data for carrying out various banking activities such as credit assessment, customer authentication, and compliance monitoring. These data activities are not currently regulated and guided by any protocols and official standards set by the Hong Kong government. However, one of HKMA’s major initiatives announced in Fintech 2025 is the Commercial Data Interchange (CDI) , which would facilitate efficient financial intermediation for data sharing between banks through data providers. This initiative is meant to cover the banking industry and data providers, 304 and would help level the field for smaller stakeholders in fintech. Improving the data infrastructure, with carefully implemented standard protocols and regulations to ensure that solid individual and corporate consent measures are in place, is crucial for the industry. A digital infrastructure that both facilitates the ease of fintech industry growth while protecting customers from the potential of digital identity infringements will be key to Hong Kong’s success. Innovation and Technology The Hong Kong government has provided strong software and hardware support to industry participants to facilitate research, development, and innovation. According to the 2020-21 Budget, the Hong Kong government introduced a number of policies and allocated over HK$100bn to fund a series of measures for the city’s I&T development. 305 With opportunities brought by the 14 th Five-Year Plan and the Guangdong-Hong Kong- Macao Greater Bay Area, Hong Kong can serve as a strategic bridge for innovative companies seeking to enter the Mainland market. Over the years, Hong Kong’s I&T ecosystem has undoubtedly become more vibrant, in particular in the digital transformation of fintech. For example, Hong Kong has a comparatively high customer fintech adoption rate of 67%, which is the same as Singapore, but higher than Switzerland (64%), the US (46%), and Japan (34%). 306 In addition, Hong Kong’s banking industry has adopted a range of fintech solutions, with 86% of banks having already adopted or have plans to adopt fintech solutions across all types of financial services. 307 Different sectors in Hong Kong have also embraced technology. For example, the Hong Kong education system has increased its focus on STEM, and local I&T and fintech companies have won international awards. An even stronger fintech infrastructure would further enhance fintech’s growth into a mature and sustainable industry in Hong Kong. Based on the opportunities observed in the I&T area, we propose that Hong Kong should establish a more sustainable fintech infrastructure to foster technological and innovation development of the fintech sector. This could be done by utilizing an API platform, enhancing a robust and secure digital identity infrastructure, evaluating its tax reduction policy, and capitalizing on existing R&D funding. 305. The 2021-22 budget. | Innovation and Technology (2021). | https://www.budget.gov.hk/2020/eng/budget14.html 306. EY. | Global FinTech Adoption Index 2019 (2019). | https://www.ey.com/en_gl/ey-global-fintech-adoption-index 307. Hong Kong Monetary Authority. | Report on Fintech Adoption and Innovation in the Hong Kong Banking Industry (May 2020). | https://www.hkma.gov.hk/eng/news-and-media/press-releases/2020/05/20200520-5/