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Development ofFinancial TechnologiesPANEL ON FINANCIAL AFFAIRSLEGISLATIVE COUNCIL1 June 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region1

Progress Made since April 2019 Number of Fintech companies and startups operating in Hong Kongreached 600 Granted 8 virtual bank licences and authorised 4 virtual insurers New regulatory framework on virtual asset trading platforms Satisfactory usage of the Faster Payment System (“FPS”) as aFintech infrastructure 20 retail banks launched over 300 Phase II (Customer Acquisition)Open APIs 2019 Hong Kong Fintech Week successfully held in November 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region2

HK has marked improvement on Fintech Adoption over thepast few yearsYear 2017: 32%Year 2019: 67%Source: E&Y Global Fintech Adoption IndexThe Fintech Adoption Index is based on data collected from onlinequestionnaires and interviews. The questionnaires and interviews weremostly focused on Fintech applications in payments, budget andfinancial planning, savings and investment, lending and insurance 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region3

Challenges and Opportunities To support the Fintech industry amidst this challengingtime The outbreak of the COVID-19 accelerates incumbent financialinstitutions to embrace Fintech, and provides a window ofopportunity for us to promote wider Fintech adoption e.g.the FPS, e-wallets, virtual banks and 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region4

Role of the Government:Balance, Planning and CoordinationFacilitatescooperationsamong bureax anddepartmentsStrengthens collaborationswith overseas andMainland Governmentsand regulatorsRegulates andProtectsPromotes andFacilitatesTakes the lead inadopting 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region5

Joint Effort of “HK 財經事務及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region6

InvestHKFintech Ecosystem Study 2019Among the survey respondents, 51% of HK Fintech firms operating / planning toexpand in the Greater Bay Area*#* Increased from 160 in 2016 to over 600 in 2019# 59% from Hong Kong and 4% from Mainland 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region7

InvestHKBrought in 57 new Fintech firms to HK in 2019% breakdown of 57 Fintech firms – by sub-sectorCredit n39%Payments17%WealthTech20%% breakdown of Blockchain firms – by sub-sectorCompaniesexploring the areaof security tokens5%Trade financesettlement9%Custodies ofdigital assets14%Trading platformsof digital assets27%Enterprisesolutions usingblockchaintechnology45%Blockchain firms showed the biggest growth(vs. 27% of total in 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region8

InvestHKApart from local HK Firms, other leading sourceswere from the Mainland, US and UK% breakdown of 57 Fintech firms – by City of OriginJapan - Tokyo4%[類別名稱]HK - with foreignerfounder(s)30%Australia - Sydney4%UK - London6%US - San Francisco7%US - New York11%Mainland - Beijing4%Mainland Shanghai19%*Others include 1 firm each from Berlin, Brussels, Paris, Jerusalem, Guangzhou, Singapore and 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region9

InvestHKEncouraging Results at 2019 Fintech Weekin a Challenging Year12,000 Attendees150 Exhibitors250 World Class Speakersfrom 28 countriesAttendees from 60 Economies1,400 Business Meetings200 Media Visits and 50 satellite events including innovation lab visits and networking receptionsthroughout the 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region10

CyberportProvides Various Programmes and Funding Schemes Cyberport’s Fintech cluster comprises of 406 Fintech companies. The development focusis to grow emerging clusters in InsurTech, RegTech and Blockchain, and strengthen theircyber security awareness and measures with support. We now have 2 virtual banks (ZhongAn, WeLab) and 2 virtual insurance companies (Bowtie, Avo) . Cyberport provides various programs and funding schemes to support Fintech Start-ups andScale-ups at different development portCreativeMicro ntSupportSchemeCyberportMacro FundHK 100,000HK 500,000HK 300,000Up to 200,000HK 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region11

CyberportCyberport Partner Networks40 Enterprises100 Investors10 Tech etworkCyberportTechnologyNetworkHK 1.38 billion (Apr 2019 – Feb 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region12

CyberportTalent Cultivation & Industry Development Drives industry development through major events & initiatives – e.g. “Belt andRoad” Summit, Asia Financial Forum , Hong Kong Fintech Week, Internet EconomySummit, Accenture Fintech Innovation Lab, Cyberport Venture Capital Forum,FinTech Delegation to UK etc., and organises regular Tech training workshopscovering AI/Big Data, Blockchain, Cyber Security, RegTech etc. University Partnership Programme/Training/Internship – since 2015, Cyberporthas sponsored over 300 university students to attend overseas entrepreneurship bootcamps at top universities (e.g. Stanford & Chicago Booth) to deepen theirknowledge and interests in Fintech together with many industry engagement projects Bridging Fintech companies to industry – facilitates adoption of Fintechinnovation by Financial Institutions and drives digital transformation for thefinancial industry to maintain global competitiveness through POC projects, training,matching, hackathon, events 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region13

CyberportCyberport Financial Practitioners FinTech TrainingProgramme Funded by the FSTB and Cyberport to run the programme as a pilot. Subsidy covers 80% course fees for participants (e.g. banks, insurance companies,licensed corporations under SFC), employers are required to cover the remaining20% fee to demonstrate commitment. In view of coronavirus outbreak, 8 of 32 sessions have been changed to webinar withpositive feedback: 100% rated “Good to Very Good” from survey respondentsTraining session(i.e. Seminar/Luncheon/Workshop)Total no. of FIsigned up(as of 6 Jan 2020)Total no. of FIexpectedTotal no. of FI onwaiting list(31 Mar 2020)Total no. oftraining session(in 2020)321,9581,500493Total no. ofwebinar session(10 Mar 2020 –19 May 2020)8Total no. offace-to-face session(28 May 2020 –5 Nov 2020)24Total no. of FIenrollment(as of 31 Mar2020)60Total no. of FI Total no. of FIattendeesabsent(as of 31 Mar (as of 31 務及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region814

Hong Kong Science ParkInternational Hub for 60 Fintech StartupsHKSTP – where Fintech R&D and entrepreneurship convergeFintech Company Profiles @ScienceParko Wealthtecho Regtech & Cybersecurityo Capital Market Solutionso Payment & Remittanceo BankTecho 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region15

Hong Kong Science ParkFin Tech Initiatives and SupportEnergizing Hong Kong’s Fintech development through industry & enterprisepartnerships, innovation with startups, co-creation via GAA and data studioGAA programme to support innovationand FinTech solution co-creationHackathons & pitching competition forindustry partners1,000 Open Banking API Listing atHKSTP Data Studio; AI Plug supporting AIin BFSIMOU and strategic partnership with localLocal and global roadshows & eventsFSI and tech company to support FinTechto attract and promote 事務及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative RegionPartnership with UK-DIT to promoteand connect FinTech communities16

Hong Kong Science ParkFintech @InnoCentre (Launch in 2nd half 2020)A Tech for Fin ecosystems for global market and talentFintech SolutionCo-creationFinTech BusinessMatchingAdvocate FintechDevelopmentGlobalLaunchPad forFintech fromAbroadNetworking [email protected] & Sandboxfor PoC TrialFintech DealFlow & FundingOpportunitiesTraining &SeminarsOn-going FinTech Projectso CBDC PoC for BoT o Trade Financeo P2P FX platformo Virtual BankPowered byA.I.BlockchainCyberSecurityData 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region17

Hong Kong Monetary AuthorityProviding a regulatory environmentconducive to Fintech developmentHong Kong Monetary AuthorityDedicated Fintech TeamFintech Facilitation Office (FFO)SandboxFintech Supervisory Sandbox (FSS) 2.0PaymentPayment Systems and Stored Value Facilities Ordinance (PSSVFO)Virtual Banking RegimeRevised Guideline on Authorization of Virtual BanksOpen BankingOpen API InitiativeCybersecurityCybersecurity Fortification Initiative (CFI)RegtechA series of Regtech 及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region18

Hong Kong Monetary AuthorityIndustry tectonic shifts are observed in virtualbankingUse of Fintech in service offeringsVirtual BanksServe underserved customer segmentsNo minimum account balance / low-balance feesFintech development and innovationFinancial InclusionBetter customer experienceAIPersonalisedfinancialservices24/7 bankingand customerservicesMicro loansand s0% FeesMany retailbanks waivedlow-balancefees in August2019About half ofeight VBswill provideservices toSMEsBig 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region19

Hong Kong Monetary AuthorityOpen API paves the way for tech-fin 務及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region20

Hong Kong Monetary AuthorityFaster Payment System (FPS)Average daily turnover of HKDreal-time paymentsNumber of registered accounts6,000,000TotalVolume (‘000)280In April 2020264,000 txn/dayHK 2.8 Bn/dayValue (HKD Bn)3.2: 4.86 001.61301.21,000,0000.88000.40.030Mobile NumberEmail AddressFPS epOctNovDecJan-20FebMarAprNo. of registered accounts5,000,000As at end-April 2020Mobile number : 3.24 millionEmail address : 0.82 millionFPS ID: 0.80 millionTransaction Volume ( '000)Transaction Value (HKD 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region21

Hong Kong Monetary AuthorityReport on Fintech Adoption and Innovation in the HongKong Banking Industry In May 2020, the Hong Kong Institute for Monetary and Financial Research (HKIMR), theresearch arm and subsidiary of the Hong Kong Academy of Finance (AoF), released a reporttitled “Fintech Adoption and Innovation in the Hong Kong Banking Industry” based on anindustry-wide survey that aims to understand banks’ views on the current status andprospect of Fintech development in the next ten years. Key takeaways of the report: Banks view Fintech more as an opportunity than a threat On average 86% of banks have adopted or plan to adopt Fintech widely Banks are proactive/reactive adopters of Fintech rather than passive followers Early signs of payoff - higher level of Fintech adoption is associated with higher costefficiency and profitability for banks Banks are confident that they will continue to play a key role over the next 10 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region22

Securities and Futures CommissionRegulatory Approach to Virtual Assets (“VAs”)(1) VA Funds Providing detailed guidance on the management and distribution of funds whichinvest in VAs (Nov 2018), and publishing terms and conditions to be imposed onVA fund managers (Nov 2019)(2) VA Futures Contracts Issuing a statement warning that platforms which offer or provide tradingservices in VA futures contracts without a proper licence or authorisation may bein contravention of the Securities and Futures Ordinance (“SFO”) or theGambling Ordinance (Nov 2019)(3) VA Trading Platforms Announcing a new regulatory framework whereby centralised VA tradingplatforms which intend to offer trading of at least one security token may applyfor licences (Types 1 and 7 regulated activities) from the SFC (Nov 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region23

Securities and Futures CommissionRegulatory Approach to VAs(3) VA Trading Platforms Robust regulatory standards under the new framework Comparable to those applicable to licensed securities brokers and automated tradingvenues but also incorporate additional requirements to address specific risks associatedwith VAs:Professional investorsonlySafe custody of assetsPrevention of marketmanipulative and abusiveactivitiesAML/CFTInclusion of virtual assetsfor 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region24

Securities and Futures CommissionRegulatory Approach to VAsNotwithstanding this, SFC has decided to adopt this interim solution, as it ismanifestly in the public interest to act now, enabling investors to choose toparticipate in regulated platforms. A permanent solution through legislativeamendments should be 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region25

Securities and Futures CommissionKey Regtech/Suptech InitiativesExternal Circular on Data Standards for Order Life Cycles (Jul 2019) whichprescribe the min. content and presentation format of trading data to besubmitted by licensed securities brokers with high transaction volumefor compliance testing Circular on remote onboarding of clients in recognisedjurisdictions using facial recognition (Jun 2019)Internal Launch of Intelligence Relationship Identification System (Mar2019) that uses Natural Language Processing and Machine Learningtechniques to identify interconnected listed and unlisted companies,individuals and intermediaries which may point to potential misconduct Developing a data analytic platform for automating certainsupervisory inspection steps, and a data visualization tool foridentification of fund movements in complex and large volume oftransactional data in enforcement 務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region26

Insurance AuthorityInsurtech Initiatives by IA IA encourages and facilitates the use of Insurtech by the insurance industry and ensures thatpolicyholders’ interests are adequately protectedInsurtechSandboxFast track forapplications forauthorization of newinsurers owning andoperating solely digitaldistribution channels(“Fast Track”) A controlled environment which allows insurers to experiment with new ideas soas to demonstrate to IA that those ideas could broadly comply with IA’s usualsupervisory requirements As of mid-May 2020, IA has approved 9 Insurtech Sandbox applications, 6 ofwhich have completed trials and been rolled out to the market A dedicated queue for new authorization applications from applicants usingsolely digital distribution channels As of May 2020, IA has authorized 4 virtual insurers, of which 2 carry on lifeinsurance business and 2 carry on non-life insurance 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region27

Insurance AuthorityInsurtech Initiatives by IAInsurtechFacilitationTeam Facilitates the Insurtech community’s understanding of the current regulatory regimeand provides advice on Insurtech-related topics as appropriate Since its establishment in February 2016, the team has handled some 240 inquiriesfrom and held some 120 meetings with different stakeholders including Insurtechstart-ups, technology firms and insurance companies IA entered into Fintech co-operation agreements with 3 overseas regulators,namely, the UK Financial Conduct Authority, the Dubai Financial ServicesAuthority, and the Gibraltar Financial Services Commission These agreements will enhance the sharing of information and co-operation onreferrals of innovative firms seeking to enter the counterpart’s market IA was accepted as a member of the Global Financial Innovation NetworkInternational (“GFIN”) in June 2019. GFIN is an international network over 50 financialFintech Coregulators and related organizations committed to supporting financialoperationinnovation in the interests of 庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region28

Insurance AuthorityInsurtech Initiatives by IA A platform which holds regular meetings for exchanging ideas of innovativeInsurtech initiatives among key stakeholdersWorking Group onEmbracing Fintech In 2019, two working group meetings were heldin Hong Kongunder Future TaskForceGuideline onCybersecurity(GL20) The Guideline sets the minimum standard for cybersecurity that authorisedinsurers are expected to have in place. It also provides the general guidingprinciples of IA in assessing the effectiveness of the cybersecurity framework ofan insurer The Guideline has been effective since 1 January 局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region29

Insurance AuthorityInsurtech Initiatives by The Hong Kong Federation ofInsurers (“HKFI”)(1) Motor Insurance DLT-based Authentication System (“MIDAS”) Digitizes motor cover note or policy by adopting blockchain technologyAllows policy holders and Transport Department to examine the validity of motorinsurance policies with ease, which will help eliminate cases of insurance scamsLaunched in December 2018(2) Insurance Fraud Prevention Claims Database (“IFPCD”) Analyses and examines the data collected to enable the industry to detect patterns offraudulent insurance claims and take early preventive measures where appropriate The project being developed in phases, the first phase of the IFPCD launched inDecember 2018 covers three lines of business, namely, motor, medical and personalaccident insurance. The onboarding of travel line of business for IFPCD has startedsince November 2019. The IFPCD will be developed to cover life insurance at a 及庫務局Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region30

Way Forward To collaborate with the Financial Services Development Council(“FSDC”) to conduct theme-based Fintech studies on e-KYC platforms,Cross-boundary sandbox and Central Bank Digital Currency; as well asmanpower study on the Fintech in

Financial Services and the Treasury Bureau, Government of the Hong Kong Special Administrative Region Hong Kong Science Park Fintech @InnoCentre (Launch in 2 nd half 2020)