Innovate or perish: Regulation remains biggest hurdle to HK's Fintech push

Charles Mok It might be late for Hong Kong to gain traction on Fintech, but the latest Budget announcement shows the government is finally steering in the right direction. Financial Secretary John Tsang unveiled a list of policies to support the development of Fintech, which include establishing a dedicated team under the Invest Hong Kong, building a Fintech dedicated platforms to liaise with the industry and creating the Enterprise Support Scheme to provide subsidies under Innovation and Technology Fund (ITF) and more.

Coincidentally, the Steering Group on Fintech set up last year under the Financial Services and Treasury Bureau (FSTB) released a report just two days after the Budget announcement. The report offered a number of suggestions on the promotion, facilitation, regulations, talents development, and funding of Fintech. However, when listening to the Secretary for FSTB Professor KC Chan addressed the government’s plans to regulate Fintech, an inconvenient truth appears to be crushing the dreams of many entrepreneurs.

Regulations revision is time-consuming

Quite contrary to the long-term vision and innovative attitude that the Budget portrayed, Professor Chan said at the press conference that to revise the existing regulations that cater for P2P lending and crowdfunding will be too time-consuming and the government prefers to make only slight changes on the existing laws. In addition, he urged technology companies to comply with the current regulations, despite many in the industry found it too stringent and out of touch with the global trend.

Going further, Professor Chan cited that the scandal at Ezubao (e租寶)—a Chinese Ponzi scheme that attracted RMB 50 billion (US$7.6 billion) fund from 900,000 investors by portraying itself as a P2P lending company—to illustrate the risk of Fintech. He added that the government has yet to see a demand for P2P lending services, and therefore not necessary to amend the laws. Meanwhile, protecting a prudently regulated financial system is at a higher priority.

Such comments appear to conflict with the vision presented at the 2016 Budget. This announcement also came as a surprise for many practitioners and entrepreneurs, who are expecting breakthrough to come from this report.

Professor Chan might not believe that Hong Kong is lagging behind from others major financial hubs in Fintech development, but let us not be fooled by his optimism. Hong Kong has the lowest score for developing a Fintech ecosystem among the seven major global financial centers, according to a study commissioned by the UK Trade & Investment, the British counterpart of Invest Hong Kong, and conducted by Ernst & Young. The report points out that the lack of ICT talent and inadequate funding for startups are undermining Hong Kong’s massive potential in Fintech development.