Capital Markets Insights

Hong Kong to Launch “Sandbox” To Facilitate Fintech Development

A major announcement was unveiled at The Treasury Markets Summit 2016, jointly organized by the  Hong Kong Monetary Authority (HKMA) and the Treasury Markets Association (TMA) on September 6th, 2016.  Two initiatives including a Fintech Innovation Hub and Fintech Supervisory Sandbox, effective immediately, will be launched for financial technology innovation in the banking sector to ensure the city doesn’t lose ground to regional rivals including Singapore and Tokyo.

Hong Kong has been slower moving than a number of countries such as Singapore, Malaysia, and Thailand rolling out new rule sets to accommodate investment crowdfunding and peer to peer (P2P) lending which are both growing trends disrupting private capital markets.

This latest move is a necessary one to maintain a competitive edge while providing an improved investor/consumer experience in financial services. Looking to ensure credibility, the “Sandbox” will focus on banks and allow them to conduct trials of newly developed technology on a pilot basis with less restrictions. Within the sandbox, banks can try out their new fintech products without the need to achieve full compliance with the HKMA's usual supervisory requirements. Sufficient risk management, customer protections and monitoring still must be maintained and banks looking to use the sandbox will need to directly apply to the HKMA for permission.

While the news is a welcome step in the right direction, other financial hubs like London and Singapore have more flexible regulatory approaches to allow fintech firms to experiment with new business and product models. With the Hong Kong government looking to be the fintech capital in Asia, the Sandbox will likely lead to further fintech innovation and regulatory flexibility in the near future.