A Supportive Regime and Ecosystem Focusing on FinTech Development

Stable, world-class regulatory regime with attractive sandboxes and initiatives to pioneer FinTech development in emerging areas. No exchange controls or restrictions on capital inflows and outflows make Hong Kong one of the freest markets for FinTech companies to grow and expand cross-boundary operations. Start-ups also benefit from a low and simple tax structure, as well as a variety of generous government support, funding, and subsidy schemes.

Banks of all asset sizes plan to dedicate more financial and talent resources to Fintech. The expected financial investment by small and medium-sized banks is set to grow by over 50% and 80% respectively in the next three-year period. Regtech, Paytech and Lendingtech are currently and set to remain the top three most commonly adopted Fintech business areas by 2025. Greentech adoption is set to increase rapidly and projected to double to around 60% of banks by 2025. Similar momentum can also be seen for Legaltech, with its adoption rate expected to almost double to around 40% by 2025, according to an assessment by HKMA in June 2022.

In June 2021, the HKMA announced the “FinTech 2025” strategy to encourage the financial sector to adopt technology by 2025, and to promote the provision of fair and efficient financial services for the benefit of Hong Kong citizens and the economy. The focus areas include:

All banks go FinTech by fully digitizing operations

Future-proofing Hong Kong for Central Bank Digital Currencies (CBDCs) by increasing Hong Kong’s readiness in issuing CBDCs at both wholesale and retail levels

Creating the next-generation data infrastructure by enhancing the city’s existing data infrastructure and building new ones

Expanding the FinTech-savvy workforce by collaborating with various strategic partners to groom all-round FinTech talent

Nurturing the ecosystem with funding and policies by setting up a new FinTech Cross-Agency Co-ordination Group and various industry key players to formulate supportive policies for the Hong Kong FinTech ecosystem

As one of the key initiatives under its “Fintech 2025” strategy, Commercial Data Interchange (CDI) is officially launched on 24 October 2022, signifying a new era of data sharing. With the launch of CDI, financial institutions could embrace more innovative applications to digitalise and streamline a wide range of financial processes, such as Know-Your-Customer (KYC), credit assessment, loan approval and risk management. Since its launch in October 2022, the number of CDI participating banks has reached 26, and key data providers have doubled from 6 to 12. The CDI utilisation rate has also increased nearly nine fold to 8,900 data requests from close to 1,000 during the pilot phase, with estimated credit approvals exceeding HK$8 billion at the end of September 2023.

In August 2023, the HKMA unveiled a new Fintech Promotion Roadmap, outlining the key initiatives that it will undertake over the next 12 months to give further impetus to Fintech adoption in the financial services industry. The new Roadmap focuses on the Fintech business areas of Wealthtech, Insurtech and Greentech as well as the technology types of Artificial Intelligence (AI) and Distributed Ledger Technology (DLT).

During the Hong Kong FinTech Week 2022, the Government issued a policy statement on the development of Virtual Assets (VA) in Hong Kong, recognising VA is here to stay and the potential of distributed ledger technologies (DLT) and Web 3.0 to become the future of finance and commerce. The Government, in conjunction with the financial regulators, are working towards providing a facilitating environment for promoting sustainable and responsible development of the VA sector in Hong Kong.

Over the past few years, the Government and the regulators have developed a comprehensive framework for the regulation of VA activities, under the “same activity, same risks, same regulation” principle. A new licensing regime for VA Service Providers took effect on 1 June 2023 to align requirements for VA Exchanges in terms of anti-money laundering, counter-terrorist financing (“AML/CTF”), and investor protection to those currently applicable to traditional financial institutions, hence offering licensed VA Exchanges the status and credibility to access a wider net of investors in the Hong Kong market.

The Government and the regulators are exploring the following pilot projects to test the technological benefits brought by Virtual Assets and their further applications in the financial markets. In February 2023, the Government successful issued the world’s first government tokenized green bond of HK$800 million, showcasing Hong Kong’s strengths in combining bond market, green and sustainable finance as well as fintech. e-HKD, another key pilot project, has made headway as Project mBridge is now at the Minimum Viable Product (MVP) development phase and the HKMA aims to launch the MVP in 2024 to pave the way for a production-ready system.

InvestHK highlighted continued ambitions to develop transformative Web3 applications during the Hong Kong FinTech Week 2023, by sharing specific Web3 successes that showcase the benefits to the economy and the lives of Hong Kong people while also bringing global impact. One example is HashKey Group and Arkreen launching the Web3 Decentralised Physical Infrastructure Networks (DePIN) Hong Kong initiative globally at the 2023 Hong Kong Web3 Carnival in April. DePIN is leading the charge, leveraging Web3's economic incentive model and smart contract collaboration mechanism. Arkreen, like all DePIN networks, is a decentralised energy data infrastructure that forms a closed-loop ecosystem encompassing both the supply and demand sides. On the supply side, Arkreen gathers data on individual environmentally friendly actions, measuring their impact as Proof of Physical Work (PoPW). This data undergoes validation, gets recorded on the blockchain, and establishes a trusted climate action footprint. The PoPW data serves as an endorsement for issuing green certificates and distributing token rewards to contributors for their genuine climate actions.