Answer ... In Hong Kong, there is no single statute that governs the fintech space. Fintech companies will often find themselves subject to traditional laws, ranging from software liabilities under common law to data privacy issues under the Personal Data (Privacy) Ordinance (Cap 486) and even competition issues under the Competition Ordinance (Cap 619).
That said, one law that many fintech businesses will inevitably encounter is the Securities and Futures Ordinance (Cap 571), which governs all ‘regulated activities’ in Hong Kong.
Given that ‘fin’ precedes ‘tech’ in ‘fintech’, the purpose of the technology developed will often encroach upon the shores of regulated activities. ‘Regulated activities’ include dealing in and advising on securities and future contracts, asset management and similar activities. Companies that conduct business activities which fall within the meaning of ‘regulated activities’ and whose intended target is the greater public of Hong Kong will find themselves subject to the Securities and Futures Ordinance.
Highly regulated industries such as banking and insurance have a licensing regime and regulations and codes of practice that govern the fintech space. For example, the Hong Kong Monetary Authority, which regulates the banking industry, is responsible for the granting of virtual banking licences.
Answer ... Hong Kong has often been a leader in regulatory developments in the fintech space (fuelling an intense rivalry with the only other Tier 1 financial centre in the region, Singapore).
Such developments have included the Payment Systems and Stored Value Facilities Ordinance (Cap 584), which governs the payment gateway space. Since the ordinance took effect on 13 November 2016, it has been unlawful for any person and/or corporate in Hong Kong to issue or operate a stored value facility (SVF) without a licence (or the benefit of an exemption) in Hong Kong. Operating an SVF without an appropriate licence is punishable on indictment by a fine of HK$1 million and five years’ imprisonment or, on summary conviction, to a fine of HK$100,000 and six months’ imprisonment.
The previous SVF regime applied only to card-based SVFs and for a lengthy period Octopus Cards Limited was the sole active licensee. The new regime introduced in 2016 updated Hong Kong’s regulatory framework to reflect technological advances in payment products and already has more than five licensees, including Tencent and Alipay.
Answer ... No single authority has exclusive jurisdiction to govern fintech-related misconduct. The governing body will often depend on the nature of the misconduct. For example, where an e-commerce business is required to apply for licence under the relevant gambling legislation, the proper licensing body will have jurisdiction.
That said, the Securities and Future Commission (SFC) is responsible for enforcing the applicable laws and regulations for all regulated activities. Fintech companies dealing with securities will therefore often find themselves under the auspices of the SFC. The SFC has the power to investigate misconduct, commence disciplinary proceedings and impose sanctions.
The other major player within the regulatory space is the Hong Kong Monetary Authority (HKMA), which governs all currency-related matters.
Neither the SFC nor the HKMA has exerted direct regulatory jurisdiction over digital asset matters, except where such matters have clearly fallen under their traditional authorities.
In November 2019 the SFC announced its regulatory framework for digital asset trading. However, a special caveat was included, stating that the SFC will govern such platforms only where they list at least one security token, thus bringing them officially under the SFC’s jurisdiction. No independent body has yet been established to regulate digital assets.
Meanwhile, as more and more digital insurance products come onto the market, the Insurance Authority has been quick to roll out guidelines in the form of GL20.
Answer ... In Hong Kong, generally speaking, no regulated activities can be conducted without a licence granted by the SFC. These rules apply equally to traditional institutions and fintech firms, which are often seen as merely adding a technical element to traditional practices.
A licence will be granted if the SFC is satisfied as regards the fitness and properness of the applicant. The SFC has also established a fintech contact point for companies that intend to engage in regulated activities.
Typically, the general approach towards emerging technologies follows a trend of ‘observe-orient-decide-act’. For example, the SFC spent over a year allowing interested digital asset exchanges to operate within a regulatory sandbox. Its observations shaped the development of a number of issues that the SFC deems to be within its auspices, eventually resulting in the publication of a regulatory framework just before the start of Hong Kong FinTech Week in November 2019.
This approach is also reflected in the HKMA’s latest venture into the virtual banking realm, in which it granted an initial eight licences. The HKMA will not grant further licences until it has observed the performance of these initial applicants over a trial period.
Again, although the HKMA is keen to become Asia’s leader in the virtual banking realm, it is also anxious to ensure that it affords adequate protection to the general population, as befits Asia premier Tier 1 financial centre.
Answer ... Hong Kong is one of the world’s top 10 fintech hubs and was ranked fifth by Cambridge Judge Business School in its 2018 Global FinTech Hub Report on the world’s most highly digitised financial sectors.
Around the world, start-up ecosystems are often described as fragmented and competitive, with many features hidden to newcomers. However, serial entrepreneurs in Hong Kong are thriving and a number of trade associations and resources have been established over the years to support this growing community.
At the centre of the fintech community is the Fintech Association of Hong Kong - a non-profit independent body comprising 14 committees that focus on blockchain, digital banking, cybersecurity and so on.
Other private organisations also exist, from the Blockchain Association and Blockchain Society to the RegTech Association of Hong Kong. Essentially, the trade associations on the Hong Kong landscape are as diverse as the various schools of thoughts within the jurisdiction.
In recent times, as the government pushes to integrate technology into traditional financial systems with the overarching goal of making them more user friendly (eg, the Banking Made Easy Initiative), traditional associations such as the Hong Kong Association of Banks have also entered the fintech space.