Hong Kong Stock Exchange Released FinTech Applications And Related Regulatory Framework

19 Oct, 2018 02:51
source: Singularity Financial 奇點財經

18 Oct 2018 –  In the new era of Fintech, stock exchanges around the globe are actively
exploring ways to perform system upgrades and service enhancements with Fintech. However, most of the existing Fintech applications are deployed in the industries of banking, Internet finance and digital currencies rather than the securities industry, in which only very few could come up with feasible plans based on specific securities business models. It is generally believed that blockchain and Artificial Intelligence (AI) technologies such as intelligent investment advisor (robo-advisor) would be the most applicable in the exchange market.

English version download here. https://www.hkex.com.hk/-/media/HKEX-Market/News/Research-Reports/HKEx-Research-Papers/2018/CCEO_Fintech_201810_e.pdf?la=en

This report focuses on blockchain and AI applications in the securities industry and explores how these new technologies could be integrated in the areas of investment, trading, clearing and settlement, as well as regulation, with a view to find specific feasible applications of Fintech in the capital market. Practical examples are presented to illustrate the impacts and significance of Fintech in the capital market and securities trading. This report introduces examples of blockchain technology deployed in trading and clearing and settlement businesses, asset rehypothecation business and private equity market as well as the use of AI technology in intelligent/roboinvestment research and advisory services. Each example compares the pros and cons of the new technology and the traditional business model, and the difficulties and challenges arising from the use of blockchain and AI technologies. Noteworthily, AI technologies in intelligent investment advisor and investment research are currently a key testing item in the “supervisory sandbox”, and securities regulators in certain countries (e.g. Korea) have already established a dedicated testing
environment. These international experience could be made reference to for considering the next step in the Hong Kong market.

This report also discusses the principles and tools in the establishment of the regulatory framework for the development of Fintech. As an emerging industry, Fintech-based business models have been evolving and becoming increasingly complicated. To a certain extent, the use of Fintech may not help reduce the inherent risks in the financial system but rather, may magnify or expose new forms of financial risk. Therefore, regulators should consider how to enable the application of Fintech innovations in the securities industry under an appropriate regulatory framework.

“Supervisory sandbox” is an effective tool for testing new financial technologies. A number of countries have been conducting “sandbox” testing on Fintech elements to different degrees. To minimize, in a controllable way, the potential negative impacts of new technology applications under uncertain regulations regulators could provide a regulatory sandbox testing environment with relatively loose regulations for pilot trials of Fintech applications. Once the risks and issues encountered in the trial have been eliminated or resolved, and that the protection of customers’ interests and the smooth operation of the financial system are ensured, the Fintech could then be
extended to a larger scope.

To download the report, please go to https://www.hkex.com.hk/-/media/HKEX-Market/News/Research-Reports/HKEx-Research-Papers/2018/CCEO_Fintech_201810_e.pdf?la=en