Introduction
Financial technology, better known as Fintech, is making headlines around the world, especially with technologically conscious Chinese customers and businesses. Recently, regulators in Hong Kong have announced sandbox and other related initiatives aimed at Fintech firms. In general, the sandbox initiatives involve offering a more controlled regulatory regime for participating firms on the condition of having more clarity on the timing, scope and volume of services it can offer, making appropriate safeguards for customers, and accepting more supervision from the relevant regulators.
HKMA – Fintech Supervisory Sandbox
The Hong Kong Monetary Authority (“HKMA”) has already launched its own Fintech Supervisory Sandbox (“FSS”) initiative in September 2016, which allows banks and their partner Fintech firms to conduct pilot trials on new financial services.
Having gained experience operating the FSS, the HKMA intends to enhance FSS, with the following new features under consideration:
- Fintech Supervisory Chatroom – HKMA can now provide feedback to banks and Fintech firms at an early stage of product development, to facilitate the rollout of new products and services.
- Direct Access for Fintech Firms – With the chatroom in place, Fintech firms may now access FSS directly without having to go through a bank.
SFC Regulatory Sandbox
The Securities and Future Commission (“SFC”) launched the SFC Regulatory Sandbox in September 2017 to provide a confined regulatory environment for Qualified Firms to operate regulated activities under the Securities and Futures Ordinance (Cap. 571) (“SFO”) before Fintech is used on a fuller scale.
The establishment or activities of these Qualified Firms should increase the range and quality of products and services for investors and benefit the Hong Kong financial services industry. To be a Qualified Firm, the firm shall:
- be fit and proper;
- utilise innovative technologies; and
- have a genuine and serious commitment to carry on regulated activities through the use of Fintech.
Under the SFO, no person shall carry on a business in a regulated activity unless the person is licensed by the SFC to conduct such regulated activity. Accordingly, a Qualified Firm should also be licensed (in the case of a start-up, it will need to apply for and obtain the appropriate licence) and comply with the applicable finanicial resources and other requirements).
At the same time, the SFC also released a circular to clarify the “relevant industry experience” requirement for responsible officers (“ROs”), who are appointed to supervise the business of a regulated activity in a licensed corporation. The SFC may recognise the RO applicant’s technology experience as “relevant industry experience” if (i) the applicant has been a key person in developing, or ensuring the proper and continued functioning of, a technology, platform or system (ie, not merely providing system support); and (ii) the technology, platform or system in which the applicant has expertise is central to the regulated activity of his/her new principal.
IA – Insurtech Sandbox
The Insurance Authority (“IA”) has recognised that the application of technology in the insurance industry (“Insurtech”) has closely followed the development of Fintech. In response, the IA has launched the following initiatives in September 2017:
- Insurtech Sandbox – Authorised insurers uncertain whether their innovative Insurtech applications can meet the relevant supervisory requirements can apply for a trial in the Insurtech Sandbox, where presents an opportunity for such insurer to collect data to demonstrate that such application can broadly meet IA’s supervisory requirements.
- Fast Track for New Insurers – the Fast Track provides a dedicate queue for new applications for insurance business in or from Hong Kong owning and operating solely digital distribution channels (as opposed to agents, brokers or banks).
Conclusions
Regulators in Hong Kong have launched their respective sandbox initiatives relevant to the booming Fintech industry. If a firm’s activities may be subject to the regulation of more than one regulator, a firm only needs to apply for the sandbox it deems more relevant. The relevant regulator will act as the primary point of contact, and will assist in liaising with other regulators.
Moreover, it should be stressed that the sandbox initiatives should not be seen as a means to bypass the current supervisory regime. While the sandbox and other relevant initiatives are meant to encourage the development of Fintech, this aim will be subject to the regulators’ duty to protect consumers and to maintain financial stability.
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