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How are the following key technologies in the fintech space regulated and what specific legal issues are associated with each? (a) Internet (e-commerce); (b) Mobile (m-commerce); (c) Big data (mining); (d) Cloud computing; (e) Artificial intelligence; and (f) Distributed ledger technology (Blockchain, cryptocurrencies)
Hong Kong

Answer ... (a) Internet (e-commerce)

As Hong Kong enjoys relatively low internet censorship and well-developed internet infrastructure, the jurisdiction has become a hub for e-commerce. In 2019, revenues in the e-commerce market in Hong Kong exceeded US$4 billion.

The largest segment of the e-commerce industry in Hong Kong is the electronics and media segment.

Accordingly, there have been rapid developments in the technologies that support and complement e-commerce – for example, cybersecurity measures, big data mining and artificial intelligence.

(b) Mobile (m-commerce)

M-commerce is the use of mobile applications for banking, payments and online purchases. The introduction and mass adoption of mobile payment apps in mainland China have fuelled Hong Kong’s development of m-commerce.

While many observe that Hong Kong has lagged behind mainland China in this regard (as the mainland is the market leader in m-commerce across the entire Asia-Pacific region), Hong Kong’s close proximity and status as a gateway to the mainland mean that m-commerce will likely be adopted at a faster pace than in other jurisdictions in the region.

However, for the moment, this remains a nascent industry, and security issues associated with the use of existing payment platforms may have contributed to the lag in development.

Nonetheless, due to its history and culture, Hong Kong is a jurisdiction where both Eastern apps (eg, AliPay) and Western apps (eg, ApplePay) already co-exist.

(c) Big data (mining)

Recently, Hong Kong’s secretary for innovation and technology rolled out a blueprint to turn Hong Kong into a ‘smart city’.

Big data is therefore being adopted enthusiastically across the board, from everyday business all the way up to government level. As Hong Kong is a centre of trade between East and West, many businesses are still attempting to adjust their online policies to the regulatory regimes of various governments across the globe (eg, the EU General Data Protection Regulation; Chinese data flow guidelines).

That said, as historical data privacy issues remain in play within the jurisdiction, Hong Kong is thought to have been slower than the mainland in adopting the use of big data.

(d) Cloud computing

As a gateway to the West, Hong Kong has become a battleground for dominance by various mainland cloud computing companies.

In the rush to adopt this new technology, financial institutions seeking to become pioneers in its adoption must assume a host of risks. This have led regulators such as the Securities and Futures Commission to issue circulars reminding financial institutions that they are expected to take all necessary precautions when using such technology, failing which regulatory intervention might be triggered.

(e) Artificial intelligence

Compared to its neighbours, Hong Kong fares poorly in the Asia Business Council’s Asian Index of Artificial Intelligence (AI) (China, on the other hand, tops the rankings). The primary reason for this situation is the fact that investment in AI tech has lagged behind that in other fintech technologies.

That said, in an economy centred on retail, food service, logistics, finance and insurance, AI is poised to challenge the traditional employment dynamic. With the roll-out of the Smart City blueprint, it remains to be seen how government incentives (which have played a key role in encouraging Hong Kong’s tech companies to develop industries towards particular vectors) will play out.

(f) Distributed ledger technology (Blockchain, cryptocurrencies)

During Hong Kong’s Fintech Week in November 2019, Asia’s first Tier 1 financial centre rolled out regulations targeted at governing digital asset exchanges.

As digital assets are still not automatically regarded as securities (they are considered commodities unless their nature proves otherwise), there is no automatic governing body which regulates blockchain-related business and cryptocurrencies.

That said, Hong Kong has introduced an opt-in regime whereby exchanges can themselves become licensed operators (a key criterion is that such candidate must list at least one securities token).

For more information about this answer please contact: Dominic Wai from ONC Lawyers