Chan: Balancing Fintech Innovation and Financial Security in Hong Kong
The second Caixin Summit in Hong Kong brought together key officials, business leaders, and top scholars from the Mainland of China and Hong Kong for forward-looking analyses and discussions on global political and economic trends as well as national economic development. Under the current trend driven by the global wave of technology innovation, I would like to share with you what Hong Kong has achieved recently in promoting financial technologies (fintech). In addition, given the complicated political and economic situation in the world, how Hong Kong maintains its financial security while promoting fintech and continues to be an important defence line for national financial security.
In developing Hong Kong’s fintech, the government has been taking up the role as a facilitator and promoter. Our strategy focuses in six aspects, including financial infrastructure, regulation, promotion, supporting services, talent attraction and funding.
Favourable financial infrastructure can facilitate the vigorous development of the financial market. The Faster Payment System (FPS) introduced by the Hong Kong Monetary Authority (HKMA) is a good example. Since its launch in last September, enterprises and individuals can make use of the FPS for real-time transactions around the clock. FPS now has more than 2.5 million registered accounts and has handled transactions of more than HK$220 billion (US$28.07 million) and RMB6 billion (US$868.84 million).
In addition to the first virtual insurer license issued by the Insurance Authority (IA) in last December, the HKMA has also issued eight virtual banking licenses so far. These new licensees will provide more convenient and innovative services through fintech.
With the concerted efforts of different sectors in recent years, Hong Kong has built up a thriving ecosystem for the fintech industry. Currently, there are more than 550 fintech companies in Hong Kong, engaging in the applied research and development on areas such as big data, blockchain, mobile payment, network security, artificial intelligence and program trading. In addition, world-renowned innovation labs and accelerator programs, such as Accenture’s FinTech Innovation Lab, Deloitte’s Asia Pacific Blockchain Lab, and the Israeli fintech platform, The Floor, have all chosen to establish offices in Hong Kong.
The development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) will further strengthen the development of Hong Kong’s fintech. Shenzhen, known as China’s Silicon Valley, is the tech innovation centre of the Mainland. To speed up the cross-border fintech collaborations in the GBA, the HKMA signed a memorandum of understanding with the Shenzhen Municipal Office of Financial Development Services in 2017, as a way to improve implementations in aspects such as soft-landing support, internship programs and exchange activities.
On top of Mainland, we also emphasize cross-border fintech collaborations with places around the globe. Over the past two years, our financial institutions have signed agreements with countries and regions including Abu Dhabi, Australia, Brazil, Dubai, Gibraltar, Malaysia, Poland, Shenzhen,, Singapore, Switzerland and the U.K.
Apart from promoting the development of fintech and our financial services sector, the government must also act as an effective regulator to ensure financial security and stability.
There are many challenges though. First, Hong Kong’s financial system is much larger than the size of its economy. For example, the value of the Hong Kong stock market exceeds HK$34 trillion, which is 11.6 times the GDP of Hong Kong. The total value of Hong Kong’s bank assets is approximately HK$24 trillion, which is 8.9 times of Hong Kong’ GDP. These are rarely seen in the world. In addition, international capitals are highly involved in Hong Kong. For example, the asset management industry in Hong Kong is managing assets of HK$24 trillion in value, of which two-thirds are from overseas; well-known global banks, insurance companies, investment banks, a wide range of funds and professional service companies have active presence in Hong Kong.
Second, the international financial markets are constantly changing and intertwined. Asset prices are also affected by international hot money. In addition, Hong Kong is an open and highly efficient economy with free and easy access to funds. Experience tells us that whenever investors need to repatriate funds from Asia due to external influences, the Hong Kong market is always the one that could provide the most convenient liquidity. All these factors have made Hong Kong’s economic and financial markets extremely vulnerable to external influences.
Third, although different asset markets in Hong Kong have different products and properties, large fluctuations in one market will still affect another one and are likely to impact financial stability.
Fourth, confidence is the foundation of the entire financial market and the key to financial stability. This includes the confidence of Hong Kong citizens and local and international investors in our financial system.
Currently, the banking system, the securities market and the insurance market in Hong Kong are respectively supervised by the HKMA, the Securities and Futures Regulatory Commission (SFC), and the IA.
However, with the everchanging tech innovations and trading methods, there has been a growing trend of cross-sectoral financial activities. To avoid regulatory arbitrage and loopholes, we have established a coordinated mechanism for a more comprehensive supervision of markets. First, there is the Council of Financial Regulators (CFR), a coordinating body chaired by the Financial Secretary with members from the HKMA, the SFC, the IA, the Mandatory Provident Fund Schemes Authority (MPFA), and the Financial Services and the Treasury Bureau. It aims to enhance cooperation among different regulators, coordinate the regulation and supervision on the financial system. In addition, the Financial Stability Committee chaired by Secretary for Financial Services and the Treasury also brings together representatives from financial regulators to closely monitors the operation of the financial system in Hong Kong.
The increasing connection between the financial markets in the Mainland and Hong Kong has brought huge opportunities for Hong Kong’s financial services industry and overall economic development. This also meets the needs of the continuous reform and opening up of the China and the internationalization of RMB.Hong Kong will continue to play the unique and significant roles as “firewall” and “testing ground” in the process. We will ensure the safety and stability of Hong Kong’s financial system, which is not only important to Hong Kong’s economic and social development, but also for the defence of national financial security.
Paul Chan Mo-po is the financial secretary of the Hong Kong Special Administrative Region Government. Chan has written this article for the upcoming Caixin Summit in Hong Kong. He will give a key-note speech on June 10 at the summit.
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