Speech on Legislative Council meeting – Reforming Outdated Legislation and Promoting The Development of Innovation and Technology

MR CHAN CHUN-YING (in Cantonese):

President, the application of innovation and technology is an integral element in driving economic
development. In recent years, many places in the world keep amending and updating their legislation to bring the operation modes of technological products under statutory regulation.   For example, California in the United States enacted legislation last year to stipulate that a licence and insurance must be acquired for operating unmanned aircraft systems.   But the situation in Hong Kong is that the Civil Aviation Department commissioned an overseas consultant to study the regulation of unmanned aircraft systems only in March, as pointed out by the Government in reply to a question asked by a Legislative Council Member in May this year. Besides, New York in the United States introduced a bill to prohibit the sale of smartphones unable to be decrypted and unlocked.
Offenders are liable to a fine of US$2,500 per mobile phone.  These are just two examples showing how technological development has necessitated legislative amendments. In contrast, it looks like Hong Kong has not introduced any corresponding amendments to the legislation on financial technology (“Fintech”) or information technology over the past few years.

According to a study report issued by KPMG, global investment in Fintech companies amounted to as much as US$320 million in total in the first quarter of this year.   I believe that in the next 10 years, technology will bring tremendous changes to the service delivery modes of the financial industry. While such changes have presented challenges to the financial industry itself, policymakers and clients of financial institutions also have to face up and adapt to such changes in the broad environment at the same time.

The study report also points out that the Monetary Authority of Singapore has striven to develop Singapore into a Fintech hub in the Asian region, and has joined hands with various international regulatory authorities to study ways to remove regulatory obstacles.   As I have mentioned many times in this Chamber, LATTICE80, the largest Fintech hub worldwide, formally commenced operation in Singapore’s central financial district in November last year.   This is sufficient proof that the efforts made by Singapore have borne some preliminary fruit.

President, the engine of Fintech integration has started in Hong Kong.   Its development in payment methods and financial management has been relatively fast, and has gradually extended to such areas as financing and insurance in recent years.   In September last year, the Hong Kong Monetary Authority (“HKMA”) rolled out two initiatives, including the setting up of the Fintech Innovation Hub
in cooperation with the Hong Kong Applied Science and Technology Research Institute Company Limited to enable operators in the Fintech industry, the banking industry and the payment service industry to launch trial runs of their new products or services in an environment well-equipped with necessary systems. At the same time, HKMA also introduced the Fintech Supervisory Sandbox to enable banks to conduct trial runs of certain new technology-based products and services without having to meet all compliance requirements.   It is believed that these two initiatives can help expedite the launching of products and services in the market.

As an international financial centre, Hong Kong must put in place stringent regulation of a high standard. This is also the foundation for the sound and robust development of the Hong Kong financial market.   But quite many studies have pointed out that due to relatively less stringent financial regulatory measures, some overseas countries are able to conceive more competitive ideas
for financial innovation when compared to Hong Kong.   Hong Kong inevitably needs to strike a better balance between regulation and innovation.   I hope the regulatory authorities can review the situation more often with the industries in order to manifest the innovation and flexibility advantage of Fintech, fully protect the interests of consumers and investors, and prevent them from being exposed to excessive or unnecessary risks.

We should not only review the relationship between regulatory legislation and fostering Fintech, but also consider the question of how to prevent excessive technological and compliance costs from hindering market development.   Hong Kong’s population merely stands at some 7 million.   Since its market size is no match for the enormous markets with hundreds of millions of clients in the Mainland, Europe and the United States, it is hard to achieve cost-effectiveness despite substantial resource commitment. As a result, the industries lack the drive to develop financially innovative businesses.

Over the years, Hong Kong has only one stored value platform called the Octopus. But last year, HKMA granted 16 licences for stored value facilities one after another. Some famous third-party payment processors from the Mainland such as Alipay and WeChat Pay have thus been granted the right of operation in Hong Kong.   And, other new smart payment methods such as Apple Pay and Android Pay have also entered the battlefield and brought new impetus to the electronic payment market of Hong Kong.

President, in order to dovetail with the Belt and  Road Initiative, the Government should create more favourable conditions for Fintech development when formulating rules, regulations and regulatory modes, so as to facilitate business expansion to the Mainland and Southeast Asian markets, increase our market size and market share, and in turn effectively enhance the cost-effectiveness of technological commitment made by the Fintech industry.

The last point is that I wish to emphasize the importance of reviewing outdated legislation.   Training of talents, especially talents who are well-versed in Fintech with a good grasp of legal knowledge, is vitally important to fostering financial innovation.

The recent years have seen rapid development of smart wealth management business in HongKong. This business entails quite many technological elements, such as big data application, multiple platforms for information management, clientele analysis models, smart systems for asset portfolio analysis, and so on. The collection, application and maintenance of big data involve personal privacy  data. At the same time, the international community has devoted full efforts to combating money laundering and terrorist  financing activities in recent years. It is also necessary to keep a close watch on the compliance of products and services. Irrespective of company and staff sizes, all companies invariably have to face changes in the relevant rules and regulations. For this reason, the training of Fintech talents must include the provision of legal training, so as to enable them to understand clearly the legislative intent  before consideration should be given to  the feasibility or otherwise of relaxing certain regulatory measures for the financial industry.

President, an overview of the global development trend shows that traditional international financial centres such as New York and London have adopted innovative means to bring  their strengths into effective play  and successfully developed into leading Fintech hubs.    With  its sound  financial infrastructure, Hong Kong should fully integrate various innovative technologies to enhance the operational efficiency of financial institutions, risk management and precision marketing, or even expand its potential clientele.   It can even be said that Fintech enterprises as service users are presented numerous opportunities.   But I wish to reiterate that if we fail to strike a balance between
regulation and innovation in time, a situation mentioned by several Members today will emerge very easily―”After leaving Suzhou, a traveller will find it hard to get a ride on a boat”―meaning opportunities will not knock at your door again if you let slip of one.

I so submit.   Thank you, President.