The Hong Kong Monetary Authority (HKMA) is the principal regulator of HK banks and Stored Value Institutions. Lately the HKMA has taken a number initiatives to coordinate fintech in Hong Kong.
It has created the Fintech Facilitation Office (FFO) which is a division within the Hong Kong Monetary Authority (HKMA) mandated to be a:
“(i) a platform for exchanging ideas of innovative fintech initiatives among key stakeholders and conducting outreaching activities;
(ii) an interface between market participants and regulators within the HKMA to help improve the industry’s understanding about the parts of the regulatory landscape which are relevant to them; and
(iii) an initiator of industry research in potential application and risks of fintech solutions.”
The FFO immediately have kicked off with two initiatives: the first is the development of a fintech Hub in HK Science Park where new pre-Sandbox fintech ideas can be tested out. The second initiative is a production ready Sandbox where Stored Value Facilities or Banks can use distributed ledgers in a live environment with customers. The Hub essentially feeds into the Sandbox.
The HKMA-Astri Fintech Innovation Hub
The Hub – which will be located at Hong Kong Applied Science and Technology Research Institute (ASTRI)’s office in the HK Science Park – is to create:
“a neutral ground of the fintech industry, a place where various stakeholders can collaborate to innovate. Industry players, such as banks, payment service providers, fintech start-ups, the HKMA, etc. can get together at this facility to brainstorm innovative ideas, try out and evaluate new fintech solutions, conduct proof-of-concept trials, and gain an early understanding of the general applicability of creative solutions for banking and payment services”
What is remarkable is that the ‘Hub’ is not just a collaboration forum but a physical location where “around 200 virtual workstations connected in a segregated network segment […] will be assigned to support the trial work at the Hub […] the Hub is equipped to emulate, compare and analyse different financial services and products supported by various fintech solutions at any one time.”
The Hub is to be used for trials of fintech solutions and proof of concepts examples including “fintech solutions that try to utilise the blockchain or distributed ledger technology in supporting cross-banks financial service” before they are “tested out at stakeholders’ production environment and subsequently launched in the market”.
In a way the Hub can be viewed as a pre-Sandbox environment for distributed ledgers. (Further the Hub will be used for events, demonstrations to HKMA of ‘regtech’ solutions it may want to adopt.)
The second initiative is the HK Sandbox. This is a facility to permit HKMA’s regulated institutions to experiment with fintech with relaxed supervisory requirements. In a similar vein to the FCA sandbox, the Sandbox will be a live environment but will have boundaries and there will be customer protection measures. The main difference between the FCA and HKMA Sandbox is that the HKMA is ostensibly focused on existing regulated institutions.
In all, this is a bold move forwards for HK and it makes particular sense to offer a physical facility for testing ideas before entering the Sandbox. In view of this vertical integration from blockchain concept to deployment, HK could become an ideal environment for blockchain consortiums.