Ecosystem For FinTech Industry

Ecosystem For The FinTech Industry

Hong Kong is not only an international finance hub, but also a technologically advanced center for logistics and communications. The city boasts a huge network of customers and funding opportunities, and is an easy market for doing business. With an abundance of local and international talent in finance, entrepreneurship and STEM (science, technology, engineering, mathematics) academia, the city has the ideal ecosystem for FinTech enterprises to succeed.

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Funding

  • Private Investment
    • Since 2010, Hong Kong fintechs have raised US$940 million, nearly one-third more than the amount raised by Australian fintechs and more than double the amount raised by fintechs in Singapore and Japan (Source: Accenture).
    • The largest fundraising in Hong Kong in 2017 was by WeLab, the mobile lending company, which raised US$220 million in November. 

 

  • Capital Market
    • HKEX reclaimed top spot in global IPO fundraising rankings at the beginning of August, thanks largely to Xiaomi, China Tower and BeiGene which brought HKEX year-to-date fundraising to HK$187 billion ($23.82 billion), ahead of NYSE and NASDAQ[1].
    • KPMG expected Hong Kong to top the global IPO market in 2018, with new listings totaling exceeding HK$ 300 billion ($38.4 billion) by the end of the year. The ‘New Economy’, aka the sectors based on technology and the internet, is expected to be the market driver[2].

 

  • Government Funding schemes
    • The Hong Kong government’s 2018 budget pledged to allocate HK$500 million to the development of financial services over the next five years, including fintech.
    • The Qualifying Debt Instrument Scheme now includes SEHK-listed debt securities through which Hong Kong investors to enjoy tax concessions on interest income and trading profits derived from a more diverse range of debt instruments.
    • Green Bond/Green Finance bond issuance programme launched in 2018 with a borrowing ceiling of HK$100 billion.
      • Sums borrowed will be credited to the Capital Works Reserve Fund to provide funding for green public works projects of the Government.
    • A provision of HK$500 million was dedicated for the development of the financial services industry in the coming five years.
    • Hong Kong Cyberport established a private equity fund to invest in fintech companies in September 2017.  In November 2017, it launched the Cyberport Investors Network, a platform that engages worldwide investors of leading venture capitalists, angel investors and private equity funds, to enhance the fundraising and deal-making capabilities of Cyberport start-ups. It comprises over 100 investors of different categories including angel, Pre-A and Post-A rounds.
    • Other funding include: Technology Voucher Programme (TVP)Innovation and Technology Venture Fund (ITVF) and Innovation and Technology Fund (ITF).

 


[1] Source: FinanceAsia

[2] Source: CNBC

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Regulation

  • New Guidelines for Cryptocurrencies
    • Securities and Futures Commission (SFC) sets new regulatory approach for cryptocurrencies to enhance investors protection. The SFC issued two circulars, one on the funds investing in virtual currencies and the other on trading platforms. The new regime will ban retail investors from trading bitcoin via these funds or platform, but allow professional investors.
    • Under the new rules, all funds which invest more than 10 percent of a mixed portfolio in crypto assets, will have to comply, whether or not those crypto assets are securities
    • The SFC will also use its existing regulatory sandbox to monitor the activities of virtual assets exchanges. This is expected to be an opt-in approach for exchanges and platform operators, the SFC will explore how these exchanges should be regulated in a strict sandbox environment.

 

  • New IPO Rules
    • Hong Kong Exchanges & Clearing Ltd. (HKEX) made the biggest change to its initial public offering rules in two decades by allowing technology firms that have shares with different voting rights to go public in Hong Kong.
    • Biotech firms with no record of profit or revenue can also list. Businesses were permitted to apply under this new regime from April 30, 2018.

 

  • HKMA: New virtual banking license
    • The Hong Kong Monetary Authority (HKMA) on February 6, 2018, published a revised Guideline on Authorization of Virtual Banks for public consultation that ran until mid-March. The HKMA received 25 responses from companies and trade organization and on May 30 published further revisions to the Guideline.
      • All supported the introduction of virtual banking in Hong Kong;
      • Most agreed that virtual banks be subject to the same supervisory requirements as conventional banks;
      • None objected to allowing both financial and non-financial firms to operate a virtual bank in Hong Kong, while there was broad support for virtual banks to operate in the form of a locally-incorporated entity with no physical branches.
    • As of 31 August, HKMA has received about 30 applications to operate a virtual bank. Some of those applications are already “substantially complete”, so HKMA would include them in the first batch of applications for processing. HKMA expects to start granting licences to virtual banks in early next year. HKMA believes establishment of virtual banks will provide further traction to the growth of the Smart Banking ecosystem in Hong Kong.

 

  • Two-tiered profits tax rates regime
    • Tax rate for the first HK$2 million of company profits will be lowered to 8.25%.
    • Profits above that amount will continue to be subject to the tax rate of 16.5%.
    • For unincorporated businesses, rates will correspondingly be set at 7.5% and 15%.

 

  • Banking Made Easy initiative
    • A new task force was set up within the HKMA to work with the banking industry to minimize regulatory friction in customers’ digital experience.

 

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Talent

  • Recruitment efforts
    • Technology Talent Admission Scheme (TechTAS)
      • A scheme to be launched by the Hong Kong government to accelerate the admission of R&D talent from overseas and the Chinese mainland.
      • Run on a pilot basis for three years, maximum of 1,000 people will be admitted in the first year.
    • HKMA will set up an academy of finance in collaboration with the Financial Services Development Council, the financial sector, tertiary institutions, professional training bodies and regulators for promoting cross-sector expertise sharing and collaboration in applied research.
    • Hong Kong winning race to attract talent
      • According to 2017 rankings released by the Switzerland-based Institute for Management Development, Hong Kong is ahead of Singapore in attracting talent.

 

  • Universities
    • HKMA step up collaboration with the ASTRI, the Science Park and Cyberport to promote the introduction of new technology and banking processes, and to nurture fintech talent.
    • The Fintech Career Accelerator Scheme, established by the HKMA, ASTRI and Hong Kong-based banks in 2016, provides fintech internships of 6-12 months at the HKMA or the participating banks to undergraduate and postgraduate students.
    • In 2017, HKUST Business School launched a host of new MBA electives including fintech and big data analytics.
    • Hong Kong Polytechnic University (PolyU) teamed up with AMTD Group Company and AMTD Foundation to launch a new university-industry fintech centre collaboration.
    • PolyU has joined forces with Melbourne-based Monash University and CollinStar Capital – a leading Australian institution specializing in Fintech – to establish the first university-industry joint-research laboratory on blockchain and cryptocurrency technologies in Hong Kong.
    • The University of Hong Kong (HKU) signed a memorandum of understanding with Hong Kong Cyberport to create a new fintech platform. Through the new platform, an “HKU x Cyberport FinTech Nucleus” will be set up representing the first step towards introducing more creativity and innovation to The Cyberport Centre of Global FinTech Innovation.
    • HKU Introduction to FinTech MOOC began in May 2018.  Some 20,000 individuals across 190 countries have signed up for the course.
    • The Chinese University of Hong Kong introduced a new, four-year undergraduate programme in Fintech.

 

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Platforms

  • Incubators
    • Cyberport incubation programme to:
      • Launch of an "easy landing" programme to attract overseas and mainland companies to set up offices and R&D units in Hong Kong.
      • Offer financial assistance up to HK$200,000 for each eligible start-up to conduct market research and promotion, as well as participate in business missions, trade fairs, exhibitions etc.
      • Financial assistance for individual start-ups will increase by 50% to HK$500,000.

 

  • Accelerators
    • Hong Kong Science and Technology Park:
      • HK$50 billion is being invested to support I&T development this financial year, with a focus on biotechnology, artificial intelligence, smart cities and fintech. This is in addition to the HK$10 billion in government funding to support these industries last year. About 12,500 people work at the Science Park, where there are 652 companies.
    • Fintech Career Accelerator Scheme 2.0:
      • Offers four fintech talent building programmes: Entrepreneurship summer boot camp; Shenzhen summer internship programme; gap year full-time placement programme; and full-time graduate programme.
      • Other private fintech accelerators include: Supercharger, FinTech Innovation Lab Asia-Pacific, Moment Accelerator, DBS and The Floor.

 

  • Sandbox
    • HKMA's Fintech Supervisory Sandbox scheme:
      • Allows banks and their partner technology firms to conduct pilot trials of their fintech initiatives.
      • As of the end of July, there had been tests on 33 new technology products, with 26 pilot trials completed and the products rolled out.

 

  • Enhanced Fintech Supervisory Sandbox(FSS) 2.0:
    • Fintech Supervisory Chatroom set up to provide speedy feedback to banks and tech firms at an early stage of their Fintech projects.
    • Tech firms have direct access to the sandbox by seeking feedback from the Chatroom without going through a bank.
    • Sandboxes of the HKMA, the SFC and the Insurance Authority are linked up so that there is a single point of entry for pilot trials of cross-sector fintech products.

 

  • HKMA-ASTRI Innovation Hub:
    • Created by Thomson Reuters and ASTRI, the platform allows banks and financial firms to develop new technology, cut costs and create new products.

 

  • Fintech innovation lab by Standard Chartered Bank:
    • The eXellerator, with an area of over 10,000 square feet, is located in the Kwun Tong district of Hong Kong to focus on AI, cybersecurity and “Banking Made Easy” to promote more digital online-based finance and wealth management offerings.  

 

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Latest sub-sector developments 

  • InsurTech
    • The Insurance Authority (IA) has been closely monitoring the development and application of technology in the insurance industry (Insurtech) and proactively assisting market participants to tackle Insurtech-related regulatory issues.
    • The IA has launched various initiatives to promote Insurtech development in Hong Kong. These include:

 

  • Blockchain
    • HKEX teamed up with Digital Asset to build a blockchain platform for post-trade allocation and processing of northbound. HKEX has been testing a prototype system for Stock Connect using Digital Asset's platform and smart contract modelling language in an effort to accelerate the post-trade process and reduce settlement. Stock Connect is a collaboration between HKEX and the Shanghai and Shenzhen stock exchanges, which lets international and mainland Chinese investors trade in each other's markets through their home exchanges' platforms.
    • Hong Kong Monetary Authority (HKMA) launched its new blockchain-based banking trade finance platform during the Fintech Week. The platform, “eTradeConnect”, combines the services of 12 major domestic banks including HSBC and Standard Chartered Bank to enhance cross border trade, and will link up with another blockchain platform called “we.trade”, to allow better trading among a network of 14 European banks including Deutsche Bank, Rabobank, and UBS.
    • The Hong Kong Federation of Insurers is in the process of creating an e-platform on blockchain to record and track data related to motor insurance in the territory.
    • The HKMA and the Monetary Authority of Singapore (MAS) agreed to collaborate on developing the Global Trade Connectivity Network (GTCN), a cross-border financial infrastructure platform based on distributed ledger technology (DLT).  
    • In September 2017, Deloitte launched a new Asia-Pacific blockchain lab in Hong Kong to help clients in the region adopt distributed ledger technology.
    • Hong Kong has established itself as a global leader in the use of blockchain in the maritime sector. In March 2018, 300 Cubits, a Hong Kong-based firm focusing on developing Ethereum blockchain for shipping, announced a successful trial shipment took place using its smart contract technology.

 

  • Cybersecurity
    • Cybersecurity-focused accelerator opens in Hong Kong:  Standard Chartered announced on April 16 the opening of its Hong Kong innovation lab, the eXellerator, to promote innovation within the Bank and to tap emerging financial technologies and data science in the region. The eXellerator in Hong Kong will be part of the Bank’s global network of innovation labs and in Hong Kong it will focus on areas such as AI and Cybersecurity.
    • Hong Kong brokerages rush to comply with new rules on cybersecurity:  a growing number of Hong Kong online trading companies are seeking to comply with the new rules outlined by the SFC on cyber risks.

 

  • Payments
    • HKMA launched the Faster Payment System(FPS) on 17 September 2018, offering 24-hour real-time payment functions. It will allow banks and Stored Value Facility service providers to provide real-time, round-the-clock, cross-institution payment and fund transfer service to their business and personal customers. FPS also supports the use of mobile phone numbers or email addresses for payments in Hong Kong dollar and renminbi anytime, anywhere.
      • Total of 21 banks (including most retail banks) and 10 SVFs in Hong Kong have participated in the system to provide FPS services for their customers at launch.
    • To promote the adoption of QR code (Quick Response code) payments in Hong Kong, the HKMA announced the Common QR Code Standard for Retail Payments in Hong Kong together and released “Hong Kong Common QR Code” (HKQR), a free mobile application tool, on 17 September 2018. The app can be used for converting multiple QR codes from different payment service providers into a single, combined QR code. This would facilitate merchants, especially small and medium enterprises, in using a single QR code to accept different payment schemes, instead of displaying multiple QR codes to their customers. 

 

  • RegTech
    • Hong Kong Association of Banks set up a working committee following the HKMA’s establishment of the KYC Utilities as a shared platform to assess creditworthiness and risk management with a view to facilitating account opening. The HKAB also appointed an independent consultancy firm to conduct a feasibility study. These developments are currently at an initial stage.
    • In May 2018, the Alliance for Financial Stability with Information Technology (AFS-IT) was established in Hong Kong. The AFS-IT includes top-level representation across the banking, financial, technology and regulatory sectors, as well as government officials from China, Hong Kong, Macau, Philippines, Thailand, Cambodia, Myanmar, Vietnam, Brunei and Laos, with a key focus being to foster innovation in regtech.

 

  • Banking (Open APIs)
    • HKMA published the Open Application Programming Interface (API) Frameworkfor the Hong Kong banking sector and announced the launch of Open API on its official website in July 2018 to provide convenient access by the public. Open API will ensure the competitiveness of the banking sector, encourage more parties to provide innovative and integrated services that improve customer experience, and keep up with worldwide development on the delivery of banking services.
      • Around 130 sets of information covering all financial data and important information listed by the HKMA will be made available for Open API in phases.
      • On launch day, 50 sets of data were opened via API, covering information most frequently accessed by the public, such as statistics on HKD exchange rates, interest rates, the banking sector and the Exchange Fund, as well as press releases and Coin Cart schedule.
      • The remaining 80 sets of information will be opened via API by phases for completion by mid-2019.
    • During the consultation, the HKMA received 41 responses from a wide range of stakeholders across the fintech ecosystem. All respondents were supportive of the HKMA’s policy direction in developing an Open API Framework. The full consultation paper can be downloaded from the HKMA website.

 

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International Collaborations 

  • Fintech Awards
    • InvestHK and UK Department for International Trade co-organized the inaugural InvestHK UK Fintech Awards to encourage ambitious overseas companies to join the flourishing Fintech scene in Hong Kong for their business expansion in Asia.
    • Announced on March 20, London-based Fintech company Mosaic Smart Data, which assists financial institutions in adapting to regulatory change, won the award.

 

  • International collaborations (to be arranged in chronological order)
    • HKMA and the Polish Financial Supervision Authority
      • Collaboration on joint research projects, information exchange, mutual consultations and expertise sharing within the fintech area.
    • SFC and Swiss Financial Market Supervisory Authority (FINMA)
      • Sharing information on emerging fintech trends, developments and related regulatory issues as well as on organizations which promote innovation in financial services.
    • Hong Kong and Australian Stock Exchanges
      • Hong Kong’s stock exchange is working with its Australian counterpart to share information on blockchain, as global exchanges accelerate plans for the technology in an attempt to compete and cut costs.
    • Hong Kong and Australia Fintech Partnership
      • Signed a memorandum of understanding to strengthen the ties between each other’s fintech industries.
    • Switzerland and Hong Kongstrengthen their cooperation in the financial markets
      • Authorities and private sector representatives from Hong Kong and Switzerland signed three MoUs during the meeting.
    • Hong Kong-London Financial Services Forum2017
      • Hong Kong and London announced the City of London has joined as a partner of the Infrastructure Financing Facilitation Office of the HKMA 7th Forum.
    • HKEx and Beijing’s National Equities Exchange and Quotations
      • Signed an agreement with to give a greenlight for technology and biotech firms to dual-list on both mainland and Hong Kong exchanges.
    • HKMA and Dubai Financial Services Authority
      • Agreement to refer fintech businesses to one another where they wish to expand into the other jurisdiction, and exchange information on fintech issues.
    • HKMA and the City of London
      • The City of London became a partner of the Infrastructure Financing Facilitation Office of the HKMA to share its network of financial institutions. Hong Kong and London also agreed to further explore the digitisation of global trade finance, including the usage of Distributed Ledger Technology (DLT) developed by the HKMA.
    • SFC and Malaysia’s Securities Commission
      • Malaysia’s Securities Commission established fintech bridges to facilitate greater information exchange on emerging trends and regulatory developments, along with referrals of innovative businesses seeking to operate in each other’s jurisdictions and the exploration of potential joint innovation projects.
    • SFC and the Dubai Financial Services Authority
      • Cooperation agreement to establish a framework for the two regulators to help each other develop the fintech industry.
    • SFC and the Australian Securities and Investments Commission
      • Fintech agreement under which the SFC and ASIC will cooperate to share information on emerging Fintech trends, developments and related regulatory issues, as well as on organisations which promote innovation in financial services. In addition, the agreement provides for a bilateral mechanism for referrals of innovative firms seeking to enter one another’s markets.
    • Hong Kong and Gibraltar
      • Fintech cooperation agreement signed between Hong Kong Insurance Authority and Gilbraltar’s Financial Services Commission.

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