Need for Legislative Changes likely to Slow FinTech Implementation, Conference Hears

Regulators are limited in how far they can accommodate FinTech innovations by the legislation they operate under, said Philippa Allen, chief executive of consultancy ComplianceAsia. FinTech developers should seek to influence policymakers as well as regulators to bring about legislative amendments that allow for broader adoption of new technological innovations in the financial services industry. 

Speaking at the Fintech O2O conference in Hong Kong on 27 September, Allen said there had been some criticism in Hong Kong over the difficulties facing certain FinTech innovations (such as obtaining a licence to operate robo-advisers) in the territory. While many have called for regulators such as the Securities and Futures Commission ("SFC") to take action to accommodate more FinTech innovations, Allen said the regulator was bound by its enabling legislation, the Securities and Futures Ordinance ("SFO"), and that legislative changes may be needed to speed up the process. 

"We need to recognise that the government is separate from regulators, and that some of these FinTech lobs need to be directed at the government," she said. "It's not just beating the regulators over the head because they can't offer a particular solution." 

Regulators in Hong Kong, as well as in other regional financial centres such as Singapore and Australia, have in recent years made moves to accommodate the growing FinTech community by setting up FinTech liaison offices and allowing for FinTech solutions to be tested in "sandboxes".

Hong Kong's government has also been vocal in supporting the FinTech community through its subsidiary InvestHK, seeing it as a new driver for growth for the territory as it faces growing pressures from the slowing Chinese economy and lower demand for traditional financial services.

With Singapore and Australia regionally, and New York and London globally also attempting to attract FinTech talent, the sector is seen as key to maintaining Hong Kong's competitive edge in a more technological economy. 

Growing global coordination between regulators on FinTech solutions was also crucial, with recent signings of so-called FinTech "bridges" between regulators in Europe and Asia expected to help speed up global adoption of new innovations and standards. 

"These FinTech bridges that are being built by the Financial Conduct Authority ("FCA") with the Australian Securities and Investment Commission ("ASIC"), the Monetary Authority of Singapore ("MAS") and so on, what it means is that if you are a start-up or a scale-up and are successful in your own country, they'll make an introduction to other regulators to request support and help interpret guidance," said Lapman Lee, managing director at Duff & Phelps. 

"You'll see more of these connections as other regulators follow suit."

Ian Wood, a partner at Simmons & Simmons in Hong Kong, said local data protection laws in different countries posed a problem to global adoption of new FinTech solutions, as many prevented customer data from being stored outside of the jurisdiction the customer is in. 

"It's all well and good talking about sharing data and using the cloud in order to use data across borders, but when you start to work out how that's not going to be in breach of data protection laws you get into a big issue," he said. "Regulators nationally and globally have to work together to allow the flow of data across borders that allows people to meet their regulatory obligations."

Regulatory Action

The SFC is due next month to kick-off a pilot FinTech project as part of a broader plan to improve the way it monitors and detects systemic risk, Reuters reported last week. It will team-up with a sample group of 20 banks and an external technology firm to overhaul the way it uses financial data, according to the tender document seeking a third party to help the SFC run the project.

The SFC hopes to more intelligently analyse the data it gathers from financial firms and the market to spot risks such as product mis-selling or fraud.

Earlier this month, the Hong Kong Monetary Authority ("HKMA") said it would establish a "supervisory sandbox" for banks and FinTech companies to trial new technologies in a secure environment before full-scale adoption. The move followed similar announcements from ASIC and MAS earlier this year.

Although Singapore and Australia's regulators were the first in the region to launch such sandboxes, Norman Chan, the HKMA's chief executive, disagreed with what he called a "commonly-held perception" that Hong Kong's financial services sector had been slow to adopt fintech solutions. 

He said many banks in Hong Kong had already told the regulator of their intention to roll out new technology aimed at providing more secure and efficient services to customers, including biometrics authentication technology using voiceprints and fingerprints. 

"This is indeed something that many banks are planning to roll out," he said. "Blockchain, robotics and augmented reality are also being explored by banks to improve their services or streamline their operations."

North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.