International law firm, Simmons & Simmons has released a new research report which shows how many large financial institutions are struggling to innovate fast enough. Hyperfinance, the firm’s flagship research programme, investigates what large banks and asset managers need to do to succeed in accelerating their digital innovation and overcome the challenges they face.
The research programme surveyed 200 senior level respondents (30 percent at C-suite level) in five global financial centres, including from 24 institutions in Hong Kong.
Institutions in Hong Kong report very high levels of interest in FinTech, focused on both external and internal investment, with 96 percent of respondents in Hong Kong expecting to collaborate with a FinTech firm in the next 18 months.
Although 50 percent of Hong Kong respondents think that acquiring a FinTech firm or start-up is an effective way to improve their FinTech innovation, only 21 percent of respondents in Hong Kong are eyeing up FinTech deals over the next 18 months, compared with 39 percent in New York and 29 percent in London.
Ian Wood, who heads Simmons & Simmons’ corporate and commercial practice for Asia, says that the FinTech sector in Hong Kong is relatively immature in comparison with London and New York. “There are a lot of start-ups, but many of them are not yet at a stage where they have shown themselves as a viable business, or proven their technology such that they make strong acquisition targets,” he explains. In both Hong Kong and Singapore, 66 percent of respondents say that a lack of certainty about the best targets is spoiling acquisition appetites; it is the region’s top barrier to acquisition.
Respondents in Hong Kong show some uncertainty about the best way forward, as well as misgivings about the suitability of potential FinTech partners. Just over half (54 percent) report building in-house expertise to improve digital and FinTech capability in recent years, while only half (50 percent) consider consortia projects with other institutions to be effective in improving digital or FinTech innovation. Three quarters (75 percent) would need much stronger assurances of FinTech firms' credibility in order to ‘hand over’ the regulatory compliance function, and more than half (58 percent) view transfer of large volumes of data to FinTech companies as a potential threat.
Cybersecurity concerns emerged as a significant barrier to partnerships, with almost 70 percent of respondents in Hong Kong reporting that cybersecurity is the most significant risk associated with partnering with FinTech firms. At the same time, 67 percent intend to increase their adoption of cloud-based services in the next 12 to 18 months, the highest figure globally.
Commenting on the results, Melissa Chim, consultant at Simmons & Simmons says: “Cybersecurity concerns remain a major barrier to effective collaboration by FinTech firms and financial institutions. Investors and regulators will expect business, legal and compliance rather than IT to be articulate on the cyber due diligence on a FinTech collaboration and the institution’s cybersecurity programme, and to adopt a dynamic approach to cyber-testing, as cybercrime is constantly evolving to avoid static safeguards.”