A commentary in a local newspaper by retired People’s Bank of China (PBOC) governor Zhou Xiaochuan suggests Hong Kong should continue to be a testing ground in experimenting new regulatory approaches and technologies for China through which the government can identify measures for closing regulatory loopholes in the financial sector.
In fact, Hong Kong can also consolidate its status as an international financial centre at the same time. To enable this to happen, however, the pool of talent is crucial.
In 2016, Chinese FinTech investment totalled US$10.2 billion (HK$80 billion), exceeding North America’s US$9.2 billion (HK$72 billion). According to an estimate in McKinsey’s report, the transaction value of mobile payments in China was 11 times of that of the U.S.
It ain’t all roses
However, fraud involving financial institutions was found. One of the largest cases is E-Rent Treasure, an online financial platform that was the subject of a government crackdown in 2016. The platform had illegally collected up to RMB50 billion (HK$62 billion) in funds and had gone bust, imposing losses on 900,000 investors across 31 provinces and regions.
In Tencent’s recent Dark Internet Industry Chain Report released in January 2018, 13 million malicious websites were found in 2017, among which banking and FinTech were within the top five categories. The report also revealed that the amount of money seized by the authority in 160 dark web cases in 2017 was RMB3.2 billion (HK$4 billion).
China has stepped up its measures to regulate the industry. The State Council announced setting up a financial stability and development committee in November 2017. The objective of the new establishment is “focusing on the deliberation and coordination of major issues concerning financial stability and related reform and development", according to the statement by the State Council. Moreover, Sun Guofeng, Director of PBOC’s Finance Research Institute, also mentioned earlier that China would explore the application of artificial intelligence and regulatory technology (RegTech) in financial supervision.
The emergence and growth of RegTech poses both challenge and opportunity to Hong Kong. In order to maintain its position as a global financial hub, the city needs to adapt quickly to the tectonic changes in FinTech. Securing a leading role in RegTech development and application may go a long way to cement its leadership in international financial services.
Hong Kong, as a global financial hub, is well-positioned to develop RegTech, similar to what New York and London are doing. Given Hong Kong’s strong understanding of international compliance and regulatory requirements, its proximity to the mainland and the bilingual abilities of the local workforce, RegTech companies here can readily explore expansion in other markets such as the mainland, Macau and Taiwan.
The key to success is whether we can leverage the technology development capabilities of technology firms in the mainland, and Shenzhen in particular, where there is a plentiful supply of software programmers and IT talents. There exists a rare opportunity to nurture a human resource base at the Lok Ma Chau Loop Innovation and Technology Park and the Guangdong-Hong Kong-Macau Bay Area Development. If talent from both Hong Kong and Shenzhen can work together, Hong Kong has the best opportunity to be in the upper part of the value chain.
Let’s grasp the opportunities brought about by RegTech development so that Hong Kong can consolidate its status as an international financial centre, while at the same time, unlock the potential of its young people.
Dr. Winnie Tang
Honorary Professor, Department of Computer Science, The University of Hong Kong