1 Legal and enforcement framework
1.1 In broad terms, which legislative and regulatory provisions govern the fintech space in your jurisdiction?
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.
1.2 Do any special regimes apply to specific areas of the fintech space?
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.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
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.
1.4 What is the regulators' general approach to fintech?
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.
1.5 Are there any trade associations for the fintech sector?
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.
2 Fintech market
2.1 Which sub-sectors of the fintech industry have become most embedded in your jurisdiction?
Insurance, wealth management and payment systems are the highest-profile fintech sub-sectors that have developed in Hong Kong over the past decade.
Hong Kong is home to at least eight unicorn companies (start-ups valued at US$1 billion), including:
- Airwallex, a cross-border payment service provider;
- TNG, a fintech company;
- Welab, an online lending platform;
- Lalamove and GoGoVan, both in logistics;
- Asia Medical, a medical company;
- Klook, a travel product booking platform; and
- SenseTime Group, an artificial intelligence company.
Following the crypto-boom of 2017, many blockchain companies have also set up shop in Hong Kong; although the development and application of relevant technologies remain to be seen. The next few years will therefore be critical for this sub-sector.
The Hong Kong government has also invested significantly in developing virtual banking practices. Eight initial licences have been granted in a bid to make Hong Kong the primary hub for this emerging industry.
2.2 What products and services are offered?
Currently, the most established products in the fintech space in Hong Kong are found in the insurance and wealth management sectors. Products such as digital non-life products have matured significantly over the past few years since they were first launched.
Payment services are also well established. For example, Octopus Card Limited (which can trace its lineage back to 1997) has become one of the longest-running stored value facility licence holders in Hong Kong's history. Starting out by providing contactless card services for the city's metro system, it has since evolved into a payment system that touches the lives of every single Hong Kong resident.
Thanks to its competitive business environment and advantageous tax exemptions for offshore companies, Hong Kong has become a major hub for technology start-ups and e-commerce businesses. Today, unicorn payment service providers active in Hong Kong include Stripe, Braintree, PayPal, PayMe, AliPay and FPS.
Given the government's strong investment in virtual banking, it is also noteworthy that one of the conditions of the eight recently granted virtual banking licences is that live services commence within six months of the date of issuance. As this deadline quickly approaches, there is a good chance that new initiatives in this sector may jump start the industry.
2.3 How are fintech players generally structured?
Generally, fintech companies seek to establish themselves in Hong Kong due to the jurisdiction's status as Asia's sole Tier 1 financial centre. Accordingly, the main objective is reputation establishment.
Fintech start-ups in Hong Kong have the opportunity to work with long-established financial institutions in developing their products. In fact, a culture of cross-industry collaboration is long engrained in Hong Kong, in policy and regulation.
For example, the recent virtual banking endeavours (which aim to promote innovation, enhance the customer experience and increase financial inclusion) laid down requirements for partnerships between applicant technology companies and financial institutions.
2.4 How are they generally financed?
Hong Kong's start-up ecosystem is vibrant. There are not only many government-supported programmes and incentives (eg, Cyberport, Science Park), but also numerous institutional investor corporations based in Hong Kong (eg, New World Development).
In terms of private investments, Hong Kong fintech companies reportedly raised a total of HK$8.61 billion from 2016 to 2018, and the jurisdiction was ranked third in Asia and seventh globally for fintech capital investment.
Hong Kong is also a hub for capital markets investment: in the first half of 2019, Hong Kong recorded a total of 84 new listings, which raised a total of HK$69.8 billion.
Hong Kong fintech companies also enjoy access to a number of government funding schemes, with entities such as Hong Kong Science and Technology Parks Corporation and Hong Kong Cyberport taking the lead on such endeavours.
2.5 How are they positioned within the broader financial services landscape?
Fintech companies in Hong Kong enjoy access to the full spectrum of the market, from virtual banks (aimed at bringing banking services to the masses) to sophisticated algorithm analysed trading (used by more sophisticated traders).
All in all, almost all sectors of the financial community are receptive to the increased use of tech in their day-to-day operations.
Hong Kong also happens to also be one of the most highly digitised financial centres in Asia. According to the Ernst and Young Global Fintech Adoption Index, the consumer fintech adoption rate has reached 67%. In short, fintech is well entrenched within the broader financial service landscape, with access to every stratum of the economy.
2.6 Do start-ups generally outsource back office functions and is there a developed market for them to access? What are the legal implications of outsourcing?
The start-up culture in Hong Kong is diverse. Depending on the specific make-up, there are start-ups that wish to conserve resources (which are less likely to put money into outsourcing); and start-ups that might wish to recognise the cost saving opportunities that outsourcing can provide.
The most critical issue that comes to mind when outsourcing is liability and adequate supervision.
In this regard, a specific analogy may be drawn to the requirements for virtual banks: while they are allowed to outsource certain functions of their operations to external vendors, adequate supervision and data protection measures must be put in place.
The issue of data security and integrity will be more relevant for fintech enterprises, given that much of their trade is in raw data. One of the greatest concerns is that unless sufficient safeguards are employed to protect such data, it may be easily accessible by wrongdoers.
3.1 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)
(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).
4.1 How are the following key activities in the fintech space regulated and what specific legal issues are associated with each? (a) Crowdfunding, peer-to-peer lending; (b) Online lending and other forms of alternative finance; (c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb); (d) Forex; (e) Trading; (f) Investment and asset management; (g) Risk management; (h) Roboadvice; and (i) Insurtech.
(a) Crowdfunding, peer-to-peer lending
In Hong Kong, crowdfunding is subject to restrictions on the public offer of shares; while peer-to-peer lending and similar activities may be caught by the Money Lenders Ordinance (Cap 163).
In this regard, it is noteworthy that collective investment schemes have been defined as a form of securities pursuant to the Securities and Futures Ordinance (Cap 517).
(b) Online lending and other forms of alternative finance
In Hong Kong, any form of lending activity (whether online or offline) will fall under the auspices of the Money Lenders Ordinance (Cap 163).
(c) Payment services (including marketplaces that route payments from customers to suppliers (eg, Uber and AirBnb)
One of the key statutes governing payment services is the Payment Systems and Stored Value Facilities Ordinance (Cap 584).
Hong Kong has had a stored value facility regime in place for some time. While it is sometimes seen as more stringent than its Singaporean counterpart, its strict regulatory requirements confirm why Hong Kong remains the region's premier jurisdiction when it comes to fintech development and consumer protection.
Hong Kong is one of Asia's strongest strongholds for foreign investment. Over the last few years, there has been a steady increase in the number of brokers' representative offices being established in Hong Kong.
The regulatory body with jurisdiction over forex trading is the Securities and Futures Commission (SFC), which is one of the strictest regulatory bodies globally, ensuring strong protection for the greater public.
If business activities involve foreign currency exchange, then these constitute a money service that is regulated by the Customs and Excise Department under the licensing regime of the Anti-money Laundering and Counter-Terrorist Financing Ordinance (Cap 615).
Within the e-trading space, the Hong Kong regulators – in particular, the SFC – have taken proactive steps to implement measures to safeguard the general public.
For example, on 27 October 2017 the SFC released its Guidelines to Reduce and Mitigate Hacking Risks Associated with Internet Trading, issued under Section 399 of the Securities and Futures Ordinance, in which the SFC set out 20 baseline preventive, detective and other control requirements to improve cybersecurity resilience in the industry.
In addition to reinforcing regulatory requirements to keep Hong Kong's financial systems up to date, the SFC has worked side by side with the Investor Education Centre to launch a cybersecurity awareness campaign.
The campaign was primarily aimed at promoting good cybersecurity practices among users, to help them protect themselves from online trading threats (which have increased over the years in both frequency and sophistication).
A key feature of this campaign was multi-factor authentication, which internet brokers were required to download and install on their websites as appropriate.
This campaign highlights how the SFC has assumed the diverse roles of regulator, promoter and educator – going many steps beyond what is traditionally expected from a regulatory standpoint.
(f) Investment and asset management
The Securities and Futures Ordinance (Cap 571) regulates dealing in securities and future contracts and asset management. A licence is required in order to conduct such business in Hong Kong.
Over the past few years, one of the key developments in this area has been the increase in investment and asset management of digital assets. As more and more Asian jurisdictions clamp down on trade in digital assets, Hong Kong has become a hub for such activities.
Since then, the SFC has issued a number of circulars with guidelines on what traditional financial institutions and licence holders should do as their businesses move closer to the digital realm.
(g) Risk management
Another well-developed regulatory sector in Hong Kong is risk management.
Jurisdiction in this regard is a shared responsibility between the SFC and the Hong Kong Monetary Authority (HKMA). On 24 September 2019 the SFC and HKMA announced the completion of a coordinated inspection campaign of a bank within a mainland-based banking group and a licensed corporation owned by a subsidiary. This proactive exercise revealed a number of vulnerabilities that the dual regulatory authorities are seeking to address.
Since then, both the HKMA and the SFC have announced that they will continue to enhance regulatory cooperation and are closely coordinating with their mainland counterparts to share information and observations derived from their supervisory work.
Under common law (including contract law), when an individual obtains services from an automated vendor, the contract is not between the individual and the automated vendor (which, under Hong Kong law, does not have the capacity to enter into an agreement); rather, it is with the operator of such services.
Roboadvice involves the provision of financial advice through an online ecosystem using algorithms and other technical tools. There are many different types of roboadvice services, ranging from full automation to less sophisticated adviser-assisted services. Where investment advice is given through these services, the SFC has noted that this will fall within its auspices. Licensed or registered persons that provide roboadvice through client-facing tools are hereinafter referred to as ‘roboadvisers'.
If client-facing tools are not involved, licensed and registered persons providing roboadvice must refer to other relevant applicable requirements governing the conduct of their regulated activities in providing such advice. Such regulations will include the Code of Conduct, Internal Control Guidelines and other codes, guidelines and circulars issued by the SFC.
In Hong Kong, parties must have a licence in order to deal in insurance, regardless of how such business is conducted. A licensed person will come under the auspices of the Code of Conduct.
The Code of Conduct does not operate in isolation. It is part of the totality of duties and obligations owed by licensed insurance brokers in their carrying on of regulated activities under common law (including contract law), the Insurance Ordinance (Cap 41), other ordinances and rules, regulations, codes and guidelines, including those administered or issued by the Insurance Authority.
5 Data security and cybersecurity
5.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for fintech companies?
The primary legislation that governs data protection issues in Hong Kong is the Personal Data (Privacy) Ordinance (Cap 486). The ordinance aims to protect the privacy of personal data and states that data users must not contravene the data protection principles enunciated therein.
According to the privacy commissioner for personal data, fintech companies should:
- have privacy policies which are transparent and easy to understand;
- collect and retain only the minimum amount of personal data required; and
- provide consumers with clear and genuine options regarding the collection and use of personal data.
Currently, there is no specific ordinance on cybercrime in Hong Kong. Accordingly, cases involving the theft of information and breaches of privacy through the use of a computer are often covered by the general offence of "access to a computer with criminal or dishonest intent" under Section 161 of the Crimes Ordinance (Cap 200). Much criticism has been levied against the excessive use of this charge, which goes far beyond the original purpose of the law.
Since the Court of Final Appeal's decision in Secretary for Justice v Cheng Ka Yee  HKCFA 9, it is now the legal position that the charge will not apply to the use by a person of his or her own computer which does not involve access to another's computer. Therefore, it is foreseeable that the charge will be limited to hacking and cyber fraud involving third-party computers.
5.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for fintech companies?
The primary legislation governing cybersecurity in Hong Kong includes traditional criminal statutes such as the Crimes Ordinance and the Personal Data (Privacy) Ordinance (Cap 486). The Hong Kong Police Force also has a specialist Cyber Security and Technology Crime Bureau, which handles cyber-related crimes.
As mentioned in question 5.1, the general offence of "access to a computer with criminal or dishonest intent" under Section 161 of the Crimes Ordinance (Cap 200) was previously used to prosecute all computer-related crimes. However, due to the clarification recently provided by the Hong Kong Court of Final Appeal, the scope of this charge has been narrowed considerably. This may provide an incentive for the legislature to introduce dedicated new legislation on technology crime and cybersecurity.
The Hong Kong Association of Banks has also established a platform to share cybersecurity threats and the Hong Kong Money Authority has indicated that non-bank financial institutions may utilise the platform. Fintech companies should guard against cybersecurity risks and those carrying on regulated activities must comply with the circulars on cybersecurity published by the Securities and Futures Commission.
6 Financial crime
6.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for fintech companies?
The Anti-money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) and the Organized and Serious Crimes Ordinance (Cap 455) govern money laundering and other financial crime in Hong Kong. As payment services is a key area of fintech, fintech companies should ensure compliance with the relevant provisions through know-your-customer procedures and customer due diligence.
7.1 Does the fintech sector present any specific challenges or concerns from a competition perspective? Are there any pro-competition measures that are targeted specifically at fintech companies?
The Competition Ordinance (Cap 619) was enacted in June 2012 and came fully into force on 14 December 2015. The regime is thus still relatively new.
Given the rapid rise of fintech in recent years – which has both become embedded in existing industries and introduced wholly new markets into our daily lives – both regulators and private citizens have spotted many potential issues from a competition perspective. For example, one common issue that start-up enterprises will encounter is how to compete with long-established incumbents (eg, virtual banks versus traditional banks).
In this regard, depending on how entrenched incumbent players are in the relevant sector, such incumbents may be tempted to use various pricing strategies to prevent start-ups from encroaching on their markets (while on its own this might be a genuine commercial action, from a bigger-picture perspective it may result in competition law concerns).
For example, a key feature of virtual banks in Hong Kong is that there is no minimum deposit requirement. Traditionally, in Hong Kong, a minimum deposit requirement applies; should a customer fall below this minimum, he or she may face penalties. Now that virtual this traditional minimum deposit requirement. The question is therefore whether this action might attract liability from a competition standpoint.
Another key risk area for fintech is information sharing. Many fintech enterprises (especially those within the distributed ledger technology space) share information (eg, through open source technology). However, this practice is rife with risks from a competition law perspective, as data may be shared with what might be potentially construed as competitors. In such cases, the parties must ensure that such actions cannot be construed as an exchange of competitively sensitive information.
As yet, there is no statute that specifically targets fintech companies. As such, the same competition laws apply across the board: the same Competition Ordinance that applies to ordinary businesses will apply to fintech companies.
8.1 How is innovation in the fintech space protected in your jurisdiction?
Copyright is protected under the Copyright Ordinance (Cap 39), and computer programs and preparatory designs for computer programs may be protected by copyright.
8.2 How is innovation in the fintech space incentivised in your jurisdiction?
Hong Kong ranks among the top 10 fintech hubs globally. In 2018, the jurisdiction placed fifth for digitalisation of its traditional financial sector and in 2019 Cornell University ranked it as Asia's fourth most innovative economy.
Over the years, the government and industry have offered various training programmes to enhance the digital literacy of practitioners in the financial services industry (eg, the Financial Incentive Scheme for Professional Training).
In this regard, Hong Kong has deployed a number of initiatives to assist with innovation, in the form of incubators and innovation labs and accelerators.
Incubators: There are two main incubators in Hong Kong – Cyberport and Hong Kong Science and Technology Park. To attract talent to Hong Kong, these incubators offer rent-free and/or concessionary rent working space, with successful Cyberport applicants being offered up to HK$500,000 to kick-start their start-ups.
Innovation labs and accelerators: A number of world-class innovation labs have been set up in Hong Kong over the years. Examples includes Accenture's FinTech Innovation Lab and Deloitte's Asia-Pacific Blockchain Lab.
Accelerators work together with innovation labs in order to promote collaboration and understanding among regulators, customers, business partners and technology companies. Examples of accelerators include DBS Accelerator, which is operated by DBS, and venture capital firm Nest.
Government initiatives: Government awards are sometimes handed out to promising programmes. Hong Kong has also signed a number of international collaboration agreements with various governments around the globe with the aim of developing the fintech market.
9 Talent acquisition
9.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have for fintech companies?
The Employment Ordinance (Cap 57) regulates the general conditions of employment in Hong Kong. Companies, including fintech companies, must comply with its provisions.
Fintech companies which are established in Hong Kong enjoy the benefits of a regime which has proactively both nurtured local talent and attracted overseas talent. In June 2019, for example, the government established the Academy of Finance, which aims to pool the strength of various education institutions in Hong Kong.
A number of schemes have also been rolled out to promote the employment of innovators, including the Hong Kong Monetary Authority's Fintech Career Accelerator Scheme.
9.2 How can fintech companies attract specialist talent from overseas where necessary?
Before looking to attract overseas talent, fintech companies should be aware that in recent years, Hong Kong has proactively nurtured local talent.
In August 2018 the government promulgated the first Talent List of Hong Kong, which included "experienced professionals in fintech", "experienced data scientists", "experienced cybersecurity specialists" and "innovation and technology experts".
Immigration facilitation is available for eligible persons under the Talent List through the Quality Migrant Admission Scheme.
Another notable development is TechTAS – a system that fast-tracks the admission of overseas and mainland research and development (R&D) talent to undertake R&D work in Hong Kong and prevent ‘brain drain'. TechTAS is open to companies admitted to Hong Kong Science Park and Cyberport which are already engaged in fintech development.
A potential overseas employee who is provided with a job offer with a remuneration package that is broadly commensurate with the prevailing market level for Hong Kong professionals may be considered favourably by the Immigration Department when applying for an entry permit.
10 Trends and predictions
10.1 How would you describe the current fintech landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Hong Kong has just rolled out its first regulation governing crypto-asset trading platforms. This means that Hong Kong might see the first licensed exchange in a Tier 1 jurisdiction launched as early as early Q2 2020.
Embracing distributed ledger technology, the Hong Kong Stock Exchange has also announced its intention to build its own blockchain platform for post-trade allocation and processing of northbound transactions.
eTradeConnect – a large-scale, multi-bank blockchain project aimed at improving overall trade efficiency and reducing risks and fraud by digitising trade documents and automating trade finance processes – was also launched in 2018.
11 Tips and traps
11.1 What are your top tips for fintech players seeking to enter your jurisdiction and what potential sticking points would you highlight?
As a Tier 1 financial centre, Hong Kong naturally has a tough anti-money laundering regime. As such, one of the most difficult tasks that start-ups face is opening a bank account. This is even harder for fintech companies – especially those dealing with distributed ledger technology, due to its prior associations with illicit activities.
That said, there are a number of practical steps that tech start-ups can take to ease the process:
- Approach the right bank with the right personnel; don't necessarily go for brand (eg, some banks are more proficient in and enthused by tech).
- Always have on hand all information regarding your company structure (it is essential that you can tell the bank who owns, operates and controls the company).
- Have a well-thought-out business plan. This is the key document that will be considered, as the bank needs to know that it will be servicing a viable business. The scale and associated risks must be clearly stated.
- Have people on the ground for face-to-face interviews. While it remains to be seen how virtual banks might change up this dynamic, at present face-to-face verification is still required.
- Open more than one bank account. It is not safe to keep all your eggs in one basket. Account closure is a real risk that businesses must face and in the event of a sudden closure, unless you have other accounts active, your business may come to a sudden halt.
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