Hong Kong’s Securities and Futures Commission (SFC) said on Tuesday is has established a Fintech Contact Poin and an Advisory Group to encourage financial technology companies to engage with the regulator since their activities are relevant to those of the SFC’s.
The Fintech Advisory Group will focus on opportunities, risks and regulatory implications that companies in the Fintech sector face. Its activities include obtaining information on the latest trends of Fintech, collecting stakeholders’ input on specific Fintech themes, and broadening the understanding of Fintech as an evolution of the financial services industry.
Meanwhile, the Fintech Contact Point is operated by the SFC’s risk and strategy unit. Similar contact points are offered in Australia and the UK, where they facilitate the regulators’ work with the Fintech community.
Fintech companies often provide services to licensed intermediaries, securities and capital markets, including automated trading systems, financing platforms, financial product investment and distribution platforms, such as robo-advisors, and blockchain technology. In addition, they offer big data, data analytics and artificial intelligence to support front and back office operations of licensed intermediaries; compliance, risk and regulatory technologies, including technologies that support regulatory compliance, regulatory reporting and know-your-client; and cyber and data security technologies, including those for client authentication. These services and markets fall under the interest and regulation of the SFC.
The Fintech sector has been rapidly developing recently with the increase of startups and the increase in financial technologies in various industry sectors. Its rise is strongly influenced by the development of the technological, social and economic environments. In April 2015, the Hong Kong government established a Steering Group on Financial Technologies, which aims to turn Hong Kong into a Fintech hub. Financial entities have been increasingly turning towards the adoption of Fintech to enhance their performance.
Moreover, regulatory bodies can also benefit significantly from Fintech services. The so-called Regtech segment, or regulation technology, shows the many services that regulators can implement in their operations, including technology that complements existing regulatory processes for more effective risk identification, risk weighting, surveillance, and data analytics.
According to a report of the Steering Group on Financial Technologies, the Fintech industry can be divided into several sub-sectors:
- digital payment and remittance
- financial product investment and distribution platforms, including fund distribution platforms and robo-advisors
- peer-to-peer (“P2P”) financing platforms, including P2P lending and equity crowdfunding platforms
- cybersecurity and data security technology
- big data and data analytics to support both front-office and back-office operations
- distributed ledgers, including application of the Blockchain technology to new asset classes and processes
Furthermore, the report points out the need for better developed regulatory regime.
Hong Kong’s SFC is a statutory body authorized to license, supervise, and discipline entities, including brokers, investment advisors, fund managers and financial intermediaries, that operate on the local securities and futures markets.