The policy address proposed to establish a “postdoctoral hub”, and the budget granted substantial funding to financial technology (fintech).
Meanwhile, we noted that the United Kingdom is establishing a global sandbox that will enable fintech firms to test their solutions in different countries at the same time and regulatory bodies to identify and solve cross-border problems.
This is really a good way to attract fintech professionals.
“Sandbox”, which reminds us of a favorite playground of children, also suggests the fun and freedom to try out new and creative ideas.
Financial regulators generally have three requirements for participants in the sandbox:
1. The product must be genuinely innovative;
2. The product has identifiable consumer benefits (e.g., saving transaction fees);
3. The applicant has considered, and put in place, appropriate safeguards to manage risks and protect consumers.
The establishment of a regulatory sandbox will allow creative financial products to be tested in a controlled environment with real customers before they are officially launched. This not only allows participants to learn from experience, but also enables the regulatory authorities to explore measures to regulate them.
As early as 2015, the UK’s Financial Conduct Authority (FCA) announced that it would establish a regulatory sandbox. Following the UK’s official launch the following year, Hong Kong, Singapore, Australia, Switzerland, Dubai, the United States, and Canada also successively established their own versions.
The sandboxes in these places are not the same. For example, in the UK, not only banks but also startups can join the sandbox. In contrast, the Hong Kong Monetary Authority only accepts applications from banks and their partner technology firms in its sandbox.
As a result, 80 percent of the participants in the UK in the first year were startups. Although applicants mainly came from the UK, overseas applications from the US and Canada accounted for a sixth.
With test lasting for six months, there will be two cohorts a year. Applications are subject to approval one by one, and each case will be followed by a case officer who ensures that the participants fit within the regulatory framework and help them clarify to the FCA experts issues related to compliance with the regulations during the process of implementation.
Taking part in the sandbox program provides a certain degree of reassurance to investors through FCA’s oversight of the firms’ tests. As a result, at least 40 percent of the firms that completed testing in the first cohort received investment during or following their sandbox tests. Further, 90 percent of the participating companies launched their tested services in the market.
Britain has already planned the next step: to enter the global financial market arena. When the sandbox was launched in 2016, it has discussed cooperation with various regulatory bodies from different countries.
In December 2016, for example, it signed a cooperation agreement with the HKMA. After that, the country also signed agreements with the Securities and Futures Commission and the Insurance Authority in Hong Kong, hoping to create synergy. At the same time, it also discussed a blueprint for cross-border sandbox with regulatory bodies in Europe, America, and Asia.
However, as mentioned by Chris Woolard, director of strategy and competition at FCA, “the creation of global standards is unrealistic” as it would take 20 years to negotiate, and it is certainly too slow for the rapidly changing world today.
Therefore, he hoped to seek common ground while respecting individual needs. It was proposed that while the participating regulators may give the innovators appropriate flexibility, individual regulatory bodies may opt in and out of certain projects.
To attract talent, we need funding, favorable policies and environment. Last year, two researchers from the University of Hong Kong and other scholars working on the regulation of financial markets, expressed that the establishment of a sandbox would help a city to develop as a financial center and become a global fintech hub.
A global fintech hub will undoubtedly become a magnet for talent. As such, every country is targeting the leading position. Hong Kong has financial strength, resources and experience. We must take action proactively as soon as possible to spot and grab the opportunities.
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