IFLR Fintech Asia 2017 forum: key takeaways

Author: IFLR Correspondent | Published: 20 Oct 2017
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Keynote address: Toa Charm, chief public mission officer, Cyberport

  • HKSAR 2017 policy address included stepping up efforts in innovation and technology to expand R&D, talent pool, venture capital and legislation reviews;
  • Goal to double GDP on R&D from 0.73% to 1.5% within the next five years
  • China, India, UK, Brazil, Australia ranked top five, Hong Kong 11th in EY Fintech Adoption Rate Report 2017;
  • HK Monetary Authority announced initiatives to boost fintech development focusing on opening up fintech sandbox, open application programming interface, smart banking, cross-border collaboration with Shenzhen and faster payment system.


The current regulatory environment in Greater China: an update

  • Regulatory development in China is happening fast but that means compliance and costs for Chinese online lending platforms are higher than ever;
  • Regulatory bodies include State Council, People’s Bank of China fintech committee, China Banking Regulatory Commission’s regulatory committee governing peer-to-peer platforms and local government registration bodies;
  • Pay day loans is a hot sector. Chinese government supports them for stimulating consumption but watch for regulations if extreme case of something goes wrong. Limit in number of companies in market imminent;
  • Securities and Exchange Commission has passed through learning curve on Chinese fintech companies to speed up IPOs but scrutiny still on disclosure of business models and accounting requirements;
  • Variable interest equity structures pose risk for foreign owners of Chinese fintechs in China still, regulators want to see PRC nationals as shareholders;
  • Hong Kong consulting on listing pre-profit companies. Securities and Futures Commission wants to see licensed companies. More companies will find way to Hong Kong if weighted voting rights and new board listing go through.


Fintech collaboration: legal and regulatory considerations

  • Open banking pose questions of data access and consumer protection;
  • Inadvertent discrimination in using artificial intelligence, for example, house insurance prices might be affected by rate of burglaries in area that is poor and discriminate against the purchaser, data doesn’t take into account moral considerations
  • UK has moved towards stricter regulation such as Payment Services Directive;
  • Application programming interfaces still an open question for Hong Kong;
  • Hong Kong is innovative in payments. Looking at central bank cryptocurrency for real disruption, unified payment regime will change ballgame which is happening already in India and China;
  • Streamlining of regulators and interoperability between sandboxes in different markets is necessary. Regulatory sandbox 2.0 and standardisation of guidelines needed.


Focus: China

  • Foreign fintechs entering China still face challenges in market entry such as licensing, lack of overreaching regulator, difficulties in achieving 100% ownership, may require to be licensed in home country;
  • Implementation challenges remain even though relaxation on opening up foreign ownership in certain sectors;
  • China cybersecurity law and regulation on data privacy increasing which are impacting companies using data and cross-border data export;
  • Hong Kong unique space as financial hub, Stock and Bond Connect helping Chinese fintech companies to go international but regulatory arbitrage common and trying to fit new technologies to outdated laws.

 

An insight into blockchain technology in the region

  • Blockchain-generalised technology, particularly with approach to exchange of information;
  • Very common for start-ups bank accounts to be shut down;
  • Scams, phishing attacks-how does self-regulation help with this? There is always the risk of money laundering, Ponzi schemes, clients lose money in the process-try to vet projects like an investor would by looking at competition, funders, business model and visibility
  • Initial coin offerings are arguably a new form of private equity investor-could replace crowdfunding and venture capital investment;
  • Failure of ICO tokens really useful as securities, not utilities. E.g. doesn’t make sense to have to buy shares in Apple in order to use their products. Using tokens to raise money in securities can disrupt regulators, legal sector, banks.


Start-up: fundraising and financing options

  • What do VCs, angels look into for a business? The earlier the start-up, the more important the team is than the business model itself;

Three important points to consider:

1. Do you know your market?

2. Are you scalable?

3. Why is your solution a better solution?

  • Ecosystem in Hong Kong difficult to reach maturity-investors reluctant to back someone without a track record-entrepreneurs have to go into China, US and London to get funding.


Is regtech the new fintech?

  • Regtech’s goal is to streamline compliance reporting, fundamentally different than fintech which tries to break rules;
  • Technology-topologically defined, Law-jurisdiction defined;
  • End goal of regtech is to have outcomes-based regulation with speed and predictability in rule of law;
  • Terminology different if dealing with artificial intelligence, machine to machine, ex: consumer protection, when things go wrong, where does the enforcement happen, rate of change is so fast, everything fine until something blows up, won’t work for digital, goal is to prevent wrong things from happening;
  • Governtech-governance tech, government involved to have better regtech regime;
  • Global systemic risk, how to implement market surveillance, recognise industry to harmonise rules, regulatory outcomes that impact consumers;
  • Technology is ready, but banks not ready to share application programming interface, collective challenge;
  • Belt and Road blockchain, room for Islamic finance along Belt and Road.


Start-up: how to structure and grow your business     

  • There are many advantages to starting a fintech company in Hong Kong. The regulatory system is reasonably accessible and easy to get a licence in. As Asia is not a homogenous market it is a safe and stable place to start off as a launching pad into other countries;
  • Fintech space in Hong Kong is relatively small and uncompetitive compared to other places like the United States, UK, China and India. Hong Kong is a good place to test out a start-up on a consumer base;
  • One major factor as to why entrepreneurs set up shop in Hong Kong is because it is a gateway to China. However, the opposite can also be argued- for example, Chinese banks have been setting up shop in Hong Kong to get familiar with international markers before further expanding overseas;
  • Setting up a business in Hong Kong is also easy compared to other countries such as Thailand and China. The transparent and established legal system is also a plus as it gives more credibility when expanding overseas.



 


 

 

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