Hong Kong's FinTech 'Sandbox': 10 Things You Need to Know
Henri Arslanian
Co-Founder, Nine Blocks Capital - Crypto Hedge Fund | ex-PwC Global Crypto Leader & Partner | Co-Host, Crypto Weekly TV show on CNBC Arabia | Host of Crypto Capsules & The Future of Money podcast | Best Selling Author
The Hong Kong Monetary Authority (HKMA) this week launched its FinTech Supervisory Sandbox (Sandbox) to facilitate the pilot trials of FinTech and other technology initiatives by banks before they are launched on a larger scale. This is a positive development for Hong Kong’s FinTech and financial services industries.
Here are 10 things you need to know about the Sandbox:
1. Goal
The HKMA wants to provide a supervisory arrangement that gives greater flexibility to banks to test new initiatives before their formal launch. The goal is to gather real-life data and user feedback in a controlled environment. This can apply to any initiative from biometric authentication and blockchain to robotics and augmented reality.
2. Benefit
The Sandbox allows a bank to test a new initiative without the need to achieve full compliance with the HKMA’s usual supervisory requirements during the test period (e.g. security-related requirements for electronic banking services).
3. Scope
The Sandbox will be available to Fintech as well as other technology initiatives intended to be launched by banks.
4. Boundaries
The HKMA requires that clear definitions be set-up on the scope and phases (if any) of the trial (e.g., size and types of customers involved, technologies and types of banking services covered), the timing and the termination arrangements.
5. Participants
The Sandbox will allow banks to conduct pilots involving actual banking services and a limited number of participating customers (e.g. staff members, customer focus groups).
6. Customer Protection
Adequate measures need to be put in place to protect customers during the trial. These should generally include a proper process for selecting customers who understand the associated risks and voluntarily want to join the trial, an enhanced complaint handling procedure, a mechanism for timely and fair compensation of customers’ financial losses caused by any failures of the trial, and appropriate arrangements for customers to withdraw from the trial.
7. Risk Management
The HKMA requires that reasonable compensating controls be implemented to address the risks posed by the trial on the bank and customers as well as to mitigate the risks arising from the exemption from full compliance with the supervisory requirements.
8. Active Monitoring
Any trial needs to be subject to close monitoring so that the bank can promptly identify and handle any significant problems or incidents that may arise.
9. Flexibility
The HKMA does not intend to stipulate an exhaustive list of supervisory requirements that may potentially be relaxed within the Sandbox. As this is a new supervisory arrangement, the HKMA will refine the arrangement over time in the light of implementation experience and industry development.
10. Contacting the HKMA
Banks intending to use the Sandbox should get in touch with the HKMA beforehand to discuss the appropriate supervisory flexibility that can be made available to them within the Sandbox.
The HKMA’s announcement of the Sandbox can be found here and the speech by the HKMA’s Chief Executive Norman Chan announcing the Sandbox here.
Feel free to contact me via LinkedIn for any FinTech related matters. For media inquiries or speaking engagement requests, please contact [email protected]
Yours in FinTech,
Henri Arslanian
***Henri Arslanian is an Adjunct Associate Professor at Hong Kong University where he teaches graduate courses on Entrepreneurship in Finance as well as the first FinTech course in Asia. His upcoming book on Entrepreneurship in Finance will be published in late 2016 by Palgrave Macmillan.
A member of the Milken Institute’s Young Leaders Circle, Henri is a regular speaker globally on the topic of FinTech and hedge funds to various audiences, ranging from TEDx to Fortune 500 management teams. He currently sits on a number of other finance, academic, civil society, and FinTech related boards and advisory committees, including the HKSFA FinTech Committee and the Hong Kong FSDC FinTech Project team.
Henri was recently with a FinTech start-up and previously spent many years with UBS Investment Bank in Hong Kong. He started his career as a financial markets and funds lawyer in Canada and Hong Kong.
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Strategic Leader in Data & Analytics, Financial Services & Infrastructure
8 年Great commentary to a highly complex arena. I don't agree this is suitable for startups. Any sandbox will be monitored and gamed by incumbent banks who see no interest in anyone 'disrupting' their dominant position. Governments and civil servants will also naturally respond to well-coordinated lobbying efforts by the incumbents; and this is particularly true in many Asian states where the relationship between government and big business is blurrier. A sandbox could work for startups. But it must be well structured; intellectual property should be identified and protected. Regulators should be wary of the inherent conflict of interest and act in a truly independent manner. To be frank, I am sceptical this is possible, and I think investors are as well. As such, a sandbox should be a big warning light to a startup. Instead I would advocate better communication between regulators and startups; for instance the HK SFC and their Fintech contact point should be congratulated. However, a sandbox is a -great- way to open the incumbents' technology stacks to both interconnection and startups who want to be ready for tech stacks in 12-18 months time. This is where a lot of concern with banks lies - the difficulty for others to interact with existing systems (I mean it's still impossible to download my statements from HSBC business in anything other than pdf!). Anything that lets outsiders see banks' tech direction and encourages greater openness should be encouraged, although I remain hesitant that banks in Hong Kong really want to embrace it.
Entrepreneur | Executive | CIO | Strategy
8 年Everyone is doing it, e.g., SG, AU, UK, and etc. Some of the regulators are nice enough to ask participants for input.
Co-Founder, Nine Blocks Capital - Crypto Hedge Fund | ex-PwC Global Crypto Leader & Partner | Co-Host, Crypto Weekly TV show on CNBC Arabia | Host of Crypto Capsules & The Future of Money podcast | Best Selling Author
8 年Great comments. Thank you. The Sandbox is indeed not perfect (would have been great to find a way to directly include the tech firms and FinTech start-ups) but is a good first step in the right direction and another positive initiative to keep the momentum going.
CEO at EVIDENT: Invest in Alternatives—Own the Future
8 年Good overview Henri, thanks. I agree that it would be beneficial for all sides if FinTech startups were invited to participate as well. While I understand the regulator takes a cautionary step-by-step approach, restricting sandbox access to incumbents limits its potential in terms of consumer outcomes and positive impact on Hong Kong's future as a financial hub. I am hopeful this is just the first step - and it is a welcome one.
Co-founder @ Finoverse | Hong Kong FinTech Week
8 年Great summary, Henri! Simple and direct as always.