Wednesday, June 10, 2015

Speech on amendment to motion on "new challenges faced by Hong Kong as an international financial centre"

Speech on amendment to motion on "new challenges faced by Hong Kong as an international financial centre"
June 10, 2015

Mr President, I thank the Hon Ng Leung-sing for his original motion so we can have a discussion here about the challenges and opportunities we Hong Kong face as an international financial center.

Article 109 of the Basic Law states that: “The Government of the Hong Kong Special Administrative Region shall provide an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial center.”

Indeed, Hong Kong’s status as an international financial center is facing strong competition globally, and we cannot rest on our laurels because our existing infrastructures, global market and technological environments are constantly changing, and the advantages we enjoy today may no longer be around tomorrow. We must plan for our future.

Ever since and indeed even before the Financial Secretary announced in the budget speech the setting up of a steering group to study how to develop Hong Kong into a financial technology – or fintech – hub, the financial services as well as technology sectors here have been buzzing with a lot of excitement, especially among startups, trying to figure out where the opportunities lie, and what the government or industry need to do better in order to capture these opportunities.

In his budget speech, the Financial Secretary said that “financial technologies that help facilitate functions such as payment, clearing and settlement systems, big data analytics, cloud computing, information and risk management and network security can enhance operational efficiency and help open new modes of development for the financial sector.” Well, fintech is actually much more than that.

Sure, fintech can help enhance efficiency of existing operations, but more importantly, fintech will create brand new business models for payment, digital currencies, investment and other financial services areas that will disrupt the existing order of things in the industry.

Just think of Internet banks in China, mobile payment inside social media platforms, and the disruptive innovation and disintermediation effect that they bring. Obviously, fintech directly challenges the big banks and incumbents in the financial services industry. Goldman Sachs predicts that revenues lost from traditional banks to new fintech players will amount to $4.7 trillion US dollars.

Bitcoin is a good example too. It is so easy for regulators and incumbents in the industry to call it snake oil – a haven of scam and even money laundering for criminals – and discount all the technological breakthroughs that made bitcoin possible, from the use of cryptography to organize a complex peer-to-peer network that revolutionizes that concept of a ledger to keep track of who owns what and when – instead of a centralized, private ledger that sits in a bank, blockchain, the technology behind bitcoin, allows this ledger to be public and distributed widely, thus being both transparent and encrypted at the same time.

That’s why it was disappointing to us when we heard the government’s early comments on bitcoin, focusing on the risks to consumers and investors, but ignoring the need to balance those concerns with proactive regulations to encourage responsible and healthy development for new ideas.

Another active area in fintech is crowdfunding, including P2P lending, which clearly can help provide more accessible, possibly cheaper and faster funding alternatives for startups and SMEs. But, development in crowdfunding is also inhibited by regulatory uncertainties, especially the prohibition of crowdfunding for equity.

A recent report by KPMG Hong Kong presented six recommendations for our fintech success:

First, clarify which sectors will be subjected to greater regulatory scrutiny by establishing a regulatory environment that combines consistency and certainty with appropriate flexibility.

Second, allow greater freedom for financial companies to advertise their services, especially to qualified investors.

Third, build further links to fintech centers in China, especially the emerging free trade zones.

Fourth, increase collaboration between different supervisory agencies aimed at simplifying the processes of establishing fintech businesses in Hong Kong and guiding them through the matrix of applicable regulations.

Fifth, continue to invest heavily in education, but broadening support to include a greater emphasis on creative subjects, including the humanities.

Sixth, facilitate greater cooperation between the public and private sectors.

These recommendations are very similar to those made in March of this year by the UK Government Chief Scientific Adviser, where we can find a few more important suggestions, such as, supporting research on big data, analytics, management of emerging risks and threats, and the social and economic impacts of fintech. The UK report also suggests that fintech modules should be included in relevant degree courses to expose students to the fintech industry and in turn to expose the fintech industry to an educated and work-ready body of students.

The UK report also recommends that regulators should engage the fintech community in automating regulation and compliance to create a state-of-the-art regulatory reporting and analytics infrastructure. That means applying fintech tools to make regulation and reporting more transparent, efficient, effective and automated. They call it regulatory technology. So, rather than regulations becoming hurdles for fintech development, technology itself will be applied to improve regulatory operations.

Finally, the UK government made it clear that it targets to develop the UK as a global hub for fintech innovation.

These recommendation are the basis of my amendment, calling for policy and regulatory clarity with flexibility, and support for infrastructure, manpower and attracting talents, and encouraging market competition.

Mr President, for anything we do, we should aim to make it an industry and be the best in the world. The recent buzz in our fintech activities has caught the attention of the world in recent months, and Hong Kong, along with Singapore, Tokyo and Sydney, are in hot pursuit of London and New York.

But I believe we can, and we have to, do it in our own way. Although we often compare ourselves with Singapore, and, like Hong Kong, Singapore also strives to become a fintech hub, I remember at a recent fintech forum I heard a speaker with strong background in the Asian markets including Hong Kong and Singapore saying, “Hong Kong doesn’t do the Singapore way very well, and Singapore doesn’t do the Hong Kong way very well.” In the end, do we want control from government, or support?

Clarity of policy from regulators and support from government will create confidence in the part of the industry. By engaging the industry players big and small, academics and regulatory bodies in a comprehensive way and with thorough and open review, and advance planning to make regulations clear, fair and predictable, we can make it.

Thank you, Mr President. 

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