To inform policy and strategy development for Hong Kong’s regulatory technology (regtech) sector, the School of Business and Management of The Hong Kong University of Science and Technology (HKUST Business School) has completed an in-depth research study showing how Hong Kong should address the various pain points facing the regtech sector with a view to strengthening its growth. Recommendations for the regulators to consider in creating a vibrant, innovation-friendly regtech ecosystem include taking the lead in technology development, incentivizing technology use, and producing clear guidelines to ease the challenges facing the industry in technology adoption.
Regtech creates value for financial institutions and end-users of financial services by automating compliance processes and enabling such innovative customer services as remote bank account opening. As an important fintech subsector, regtech is promoted by the Hong Kong Government as part of the city’s fintech strategy.
The study draws on insights shared by regtech solution providers and regtech users, including senior management from banks, payment service providers, and asset management companies, through an online survey and focus group discussions. The research team’s key observations and recommendations are summarized in two reports.
Given the potential regtech has in automating financial institutions’ know-your-customer (KYC) # processes, the research team recommended establishing a set of clear protocols on releasing government data for document verification purpose. As solutions for Hong Kong’s regtech talent shortage, the research team has also proposed allocating more resources for on-the-job training, requiring mandatory IT courses for finance majors, and establishing a widely accepted accredited program in regtech.
Dean of HKUST Business School Professor TAM Kar Yan, said, “Financial institutions are increasingly looking to regtech to remain competitive and deliver consistent value to customers amidst a fast-changing market characterized by a profusion of regulatory requirements. Through this study, we hope to support policymakers, regulators and industry participants to strengthen our city’s regtech capabilities, and in turn expedite industry development. Going forward, we will also dedicate more resources and focus on regtech research.”
The recommendations on promoting regtech development in Hong Kong outlined in the study are as follows:
On Creating a Friendly Regulatory Environment that Encourages Innovation
1. Establish clear guidelines with notes on interpretation and provide prompt feedback
2. Provide incentives to the industry, startups, and academics to facilitate regtech innovation
On Building a Connected, Inclusive, and Vibrant Regtech Ecosystem
3. Regulators to take lead in technology solutions to address pain points of the industry
4. Build an inclusive regtech network through the facilitators
5. Accreditation of regtech solution providers
Facilitate the Sharing of Data & Technology in the Regtech Community
6. Standardize the APIs for different banks to share data
7. Provide shared databases and platforms to be accessed by different regtech stakeholders
8. Allow successful sandbox projects to share solutions
On Facilitating KYC Processes and Cross-Border Data Access
9. Establish protocols for verification of documents and identities (individuals and corporates)
10. Collaborate with Mainland China to offer standardized procedures and data access
On Solving Hong Kong’s Regtech Talent Shortage
11. Government and regulators to allocate more resources for on-the-job training
12. Government to sponsor more internships, as firms may not have the resources to support student internships
13. Government could provide living allowance to expatriates, or subsidize the companies who offer housing benefits to expatriates to increase their willingness to relocate to Hong Kong
14. Higher education providers to include mandatory IT courses in the curriculum for finance majors
15. Establish a widely accepted accredited program with regtech as a specialization for graduates and practitioners to certify fintech and regtech talent
16. Provide a clear path for the regtech profession and offer a more rewarding scheme and more interesting future prospects to attract students into the field
The study was funded by the Policy Innovation and Coordination Office (PICO) and the Research Grants Council (RGC). The two reports of the study are available for download:
- Regtech Development in Hong Kong: Challenges and Recommendations discusses the barriers hindering regtech growth in Hong Kong. Read the full report here
- Regtech Development in Hong Kong: Talent as a Fuel for Growth focuses on the regtech talent landscape and examines the talent gaps. Read the full report here
# “Know your Customer” refers to the operating principle applicable to the financial sector which requires financial institutions to make reasonable efforts to determine the customer’s true identity, and have effective procedures for verifying the bona fides of new customers, with a view to deterring money laundering and other misconducts.
About The Hong Kong University of Science and Technology
The Hong Kong University of Science and Technology (HKUST) (https://hkust.edu.hk/) is a world-class research intensive university that focuses on science, technology and business as well as humanities and social science. HKUST offers an international campus, and a holistic and interdisciplinary pedagogy to nurture well-rounded graduates with global vision, a strong entrepreneurial spirit and innovative thinking. Over 80% of our research work were rated “Internationally excellent” or “world leading” in the Research Assessment Exercise 2020 of Hong Kong’s University Grants Committee. We were ranked 3rd in Times Higher Education’s Young University Rankings 2022, and our graduates were ranked 30th worldwide and among the best from universities from Asia in Global Employability University Ranking and Survey 2022. As of 2022, HKUST members have founded 1,645 active start-ups, including 9 Unicorns and 9 IPO companies, generating economic impact worth over HK$400billion. InvestHK cited QS World University Rankings by Subject 2021 to demonstrate the performance of five world’s top 100 local universities in several innovation-centric areas, among which HKUST ranked top in four engineering and materials science subjects.
About the HKUST Business School
The School of Business and Management of The Hong Kong University of Science and Technology (HKUST Business School) is committed to advancing global business knowledge. The School has forged an international reputation for world class education programs and research performance, and has received many top global rankings. For more details about the School, please visit https://bm.hkust.edu.hk