HKUST Study Shows Pathways to Strengthening Hong Kong’s Regtech Capabilities
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: