Singapore and Hong Kong still have the ability to play a role in the burgeoning financial technology (fintech) industry despite a tough regulatory environment, according to industry players.
The two cities’ fintech future has been cast into doubt recently, with regional neighbours offering looser laws and rules, but now others have leapt to their defence.
Luke Grubb, a Singapore-based corporate lawyer at law firm Latham & Watkins, said that the city-state was trying to create an accommodative yet safe environment.
Citing the example of the Monetary Authority of Singapore (MAS), Grubb said he believed the city-state’s aim was to provide a balance between risk and reward – both in ensuring the market’s security and stability while also encouraging financial innovation.
MAS’s active nurturing of the fintech scene was demonstrated on July 2 when it pledged to commit S$225 million ($170 million) to the industry over the next five years. This is an attempt to create a start-up eco-system to allow financial groups to experiment with bold new ideas.
“MAS recognises the need for the industry to innovate,” said Kee-Min Ngiam, corporate lawyer at Latham & Watkins. “It is telling the industry that they don’t need to come to us for approvals for every innovation while also willing itself as regulator to accept the risk that there will be incidents along the way.”
Janos Barberis, a research fellow in Asian financial law at the University of Hong Kong, argues that regulators need to adopt a tiered regime in regulating the financial industry, where the level of compliance is proportionate to a company’s risk and the government’s objective. Small start-ups, for example, should not have the same obligations as large financial institutions.
Barberis cited China’s consultation on third-party payments, announced on July 31, which is moving towards a tiered regime. In such a regime start-ups could operate in a different regulatory regime to large corporates, with a cap on the value or volume of transactions, and therefore a cap on risks.
Some market participants have observed Western financial technology groups building up their base in the two entrepôts and using their system of common law, and cultural and lingual diversity to tap into their larger neighbours in the form of China and Southeast Asia.
With a spectacular amount of technological innovation coming from the region, the two cities are also seeing Southeast Asian companies and in particular Chinese companies set up in Singapore and Hong Kong respectively for funding and even global expansion.
There have been a number of examples of Hong Kong attracting innovative fintech start-ups.
8 Securities, a Hong Kong-based online trading firm, last November closed a $8.7 million round of funding, with some of the proceeds being used for developing a presence in mainland China.
LMAX, a foreign exchange broker which set up shop in the city in 2014, sees Hong Kong’s relationship with mainland China as a strength. With Stock Connect on the rise and the internationalisation of the renminbi, it sees itself as being positioned to attract business from the region.
In contrast, the established mainland Chinese e-commerce giant Alibaba has set up its international headquarters in the city to help it expand globally.
However, Hong Kong’s ability to attract fintech groups by acting as springboard to the mainland has been limited by the Chinese government’s attempt to force foreign businesses to buy “secure and controllable” IT equipment. These rules have since been suspended, but the initial introduction of them may indicate where Beijing is heading and could in the future limit the appeal of Hong Kong.