OPINION-Hong Kong is moving towards a new era of FinTech

*By Oriol Caudevilla

As I mentioned in my latest article, “China´s FinTech scene is on the rise” (Macau Business, November 2), consumer behavior is changing due to the COVID-19 pandemic, thus turbocharging a financial technology revolution all over the world. 

I also concluded by saying that Hong Kong (and Macau, to a lesser but very relevant extent) can undoubtedly play a vital role in China´s FinTech scene, given Hong Kong´s current position as one of the most important financial centres in the world and also given the fact that its FinTech industry has the potential to develop much faster now that it can leverage its involvement in the Greater Bay Area (GBA) blueprint.

However, the recent Hong Kong FinTech Week showed us that Hong Kong has taken it a step further, by becoming ready to move towards a new era of FinTech. The Hong Kong FinTech week is a three-day event (this year, virtual) in which topics like digital banking, crypto assets, big data application and artificial intelligence were discussed, being one of the largest conferences on the calendar.

This year´s event has given us many headlines, such as Ashley Alder´s, the CEO of the Securities and Futures Commission (SFC), announcement of a proposed new licensing regime for virtual assets trading in Hong Kong, with the launch of public consultation (due on January 31, 2021) on legislative proposals designed to enhance anti-money laundering and counter-terrorist funding (AML and CTF) in Hong Kong.  In this sense, Ms. Irene Wong, Founder and CEO of ixFintech, considers that “this new regulation will put everyone in a level playing field and will give investors a safety net, which I personally think should help the digital asset market to grow in the long run by giving investors more confidence of this new asset class.”

However, I want to focus now on this “new era” concept. In his opening keynote, Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue announced that Hong Kong has embraced a new era for smart banking. 

Mr. Yue shared four main initiativesthat the city was undergoing to prepare its financial sector for the future: the HKMA (Hong Kong´s de factocentral bank) is exploring a new data strategy,consisting of building a financial infrastructure called Commercial Data Interchange (CDI) to enable more efficient financial intermediation in the banking system. According to the HKMA, this could solve a «long-standing pain point» of small and medium-sized enterprises (SME) seeking to enhance financial access using their own data. The HKMA is conducting a proof-of-concept study in collaboration with banks. The current phase will focus on using trade-related data to facilitate the trade finance application process and the next phase will cover other data sources for alternative credit scoring.

On top of that, there were some news regarding trade finance as well (trade finance refers to financial transactions -domestic and international- where financial institutions provide credit to guarantee an exchange of goods). Applying blockchaintechnology to trade finance will help to reduce many existing inefficiencies.

In this sense, the operators of eTradeConnect (Hong Kong´s trade finance platform) and the People’s Bank of China Trade Finance Platform announced in November 2019 that a proof of concept (PoC) would be conducted to explore connecting the two platforms. The HKMA announced on Tuesday that Phase 1 of the PoC was completed successfully. The second phase will begin in early 2021 with a focus on expanding the range of trade activities and financing products. 

The third initiative is related to Central Bank Digital Currencies (CBDCs):the HKMA is exploring its own opportunities in a joint research study (Project Inthanon-LionRock) with the Bank of Thailand (BoT). The two central banks aim to explore cross-border trade settlement and capital market transactions via CBDCs. Other parties involved include the Hong Kong Exchanges and Clearing (HKEX), 19 banks and a few other companies, like ConsenSys, which had been awarded a cross-border payment network study project by the HKMA as part of the Phase 2 of the project. The two authorities also intend to enhance the cross-border corridor network prototype to support CBDCs of other central banks in the region. Findings from the joint study will be are expected to be shared in the first quarter of 2021.

Lastly, the HKMA has developed a two-year roadmap to promote regulatory technology (RegTech) adoption in Hong Kong’s banking sector.

To sum up, not only Hong Kong has already become a FinTech hub, but it is already preparing itself for the next era of FinTech and smart banking through the four main initiatives disclosed by the HKMA during the Hong Kong FinTech Week.  Hong Kong has already been for decades one of the world´s most important financial centers and will remain so, but it is wise to keep improving and embracing technologies in order to keep its leading position and never being left behind.

*[The author holds an MBA and a doctorate in Hong Kong real estate law and economics. He has worked as a business analyst for a Hong Kong publicly listed company and he has given seminars at HKU on Shadow Banking in China and at several universities in Macau on China´s new digital yuan. He is currently a member of the Blockchain, Digital Banking and Greater Bay Area Committees at the Fintech Association of Hong Kong (FTAHK)]