Hong Kong’s Fintech Sandbox Risks Alienating Innovators

HKMA financial technology sandbox needs to evolve to maximise value for all concerned, a new study suggests.

In September 2016, HKMA rolled out its FSS (Fintech Supervisory Sandbox) to enable innovation within the fintech space and ensure Hong Kong remains a competitive and efficient global financial centre. As of 29 December 2017, 28 new technology products involving nine banks have been piloted in the FSS.

Highlighting that the FSS is intended only for the use of AIs (authorised institutions), a new paper by industry veteran Philip Keller argues this approach naturally creates a monopoly and provides little incentive to innovate, as it excludes non-AI companies and entrepreneurs.

“This dependency on established, naturally conservative, fast following AI’s […] points to Hong Kong’s’ inability to be a hotbed of development of Fintech advances” and despite “some good work being done” by AIs seeking to innovate, none of it is groundbreaking, the paper suggests.

With “short sighted” AIs focused on delivering products alongside their core functions, the FSS provides no encouragement to get rid of legacy systems and workforces. Its approach treats fintech merely as an enabler of automation, efficiency and cost savings alone, demonstrating a failure to understand the basic attributes of the fintech environment.

“HKMA’s more traditional, cautious and proven-solution approach […] is not only out of sync with startup culture, it is behind the means of many startups and is largely seen (by them) as bureaucratic,” the paper reads. “Steps like this discourage startups from bringing their ideas to Hong Kong and to take them to other jurisdictions which are more start up friendly.”

The paper argues “fintech champion” Singapore offers an extraordinary competitive edge, having progressed by increasing connectivity between entrepreneurs, financial institutions and regulators.

“Innovation requires freedom and risk taking to thrive; the antithesis of the traditional regulatory mindset,” it explains.

The full paper by Philip Keller is available for download here.

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