Hong Kong Starts-Up: Reinventing Hong Kong’s Fintech Regulatory Regime

Strenuous efforts are being made in Hong Kong’s financial industry to drive digital transformation and the development of mobile payment, peer-to-peer lending, retail and investment trading platforms, institutional trading platforms and products and services offered through blockchain technology. One of a growing number of investment tools on the market, the Smart Investment Advisor (SIA) platform from Contrendian Limited enables investors to manage their own portfolio more easily by obtaining professional advice on finance and investment via the platform, bypassing the traditional channel of intermediaries. Frank Ho and Walter Cheung, co-founders of Contrendian, talked to HKTDC Research about the local fintech market. They believe that Hong Kong’s conservative financial supervision approach has held back start-ups’ efforts to roll out novel financial products. They are looking forward to an improved regulatory environment which is more responsive to new technological developments.

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Ho studied computer science and Cheung engineering in college, and both obtained an MBA (Finance) afterwards. With a wealth of experience in asset management, they were keen to use data science to raise the technological level of Hong Kong’s asset management services. The pair pointed to Hong Kong’s status as both an international financial hub and one of the largest asset management centres in the world, with an active stock exchange. And yet, they said, the types of service offered by local fintech companies are few and far between and are confined to things like developing payment systems or apps related to blockchain technology.

Supervision Approach ‘Too Conservative’

To fuel the growth of Hong Kong fintech start-ups, government policies and the overall business environment both have a crucial role to play. Ho and Cheung believe that while Hong Kong boasts a robust financial system, the government’s approach to supervision has been too conservative. Because there is little tolerance for mistakes or failure, such an approach cannot cope with the risks arising from the adoption of new technologies. The Fintech Supervisory Sandbox of the Hong Kong Monetary Authority (HKMA) is a case in point. Since its launch just over four years ago, only 170 fintech initiatives have been allowed to conduct pilot trials under the Sandbox without the need to achieve full compliance with HKMA’s supervisory requirements. This shows how start-ups promoting innovative financial products have their hands tied by the supervisory system. The system has not only caused frustration among adventurous entrepreneurs, it is also unconducive to the growing start-up community. The pair accept that Hong Kong’s financial policies favour start-ups, but believe that the supervision environment must respond swiftly to the latest technological developments. They are hopeful that the Hong Kong government may adopt a more aggressive approach in this regard in the future.

Ho and Cheung also noted that the Hong Kong government has provided increasing financial support to start-ups in recent years. They added, however, that if the application procedures could be streamlined, the assessment standards updated and applicants allowed to use the funding more flexibly, government resources could be used to benefit more companies. They recalled their experience of applying for a Hong Kong Science Park subsidy scheme for a patent application as an example of this. Since the cost was expected to go beyond HK$50,000, they were required to obtain quotations from three law firms and select the lowest bidder. In reality, patent application for an investment technology platform is a highly specialised area and very few local law firms are able to submit a quotation. As a result, the whole process became extremely time-consuming. Moreover, the practice of awarding a job to the lowest bidder is now outdated, given the financial sector’s latest service scope.

Ho and Cheung are confident that there is a steady supply of high-calibre talent for the sector, which has seen an influx of ambitious university graduates in recent times. However, in the past Contrendian has hired interns only to see most of them, upon graduation, choose to further their studies in graduate schools or seek a career in more sizeable firms. Joining start-ups is not a popular option. Ho and Cheung have tried to encourage university graduates to gain a deeper understanding of working in a start-up through various avenues, and actively consider pursuing a career in the local start-up community. In the past two years, both of them have taught in the CUHK Business School as guest lecturers, trying to identify talent for their company at the same time. They are also partnering with the job placement centres of tertiary education institutions in a bid to recruit graduates.

Pandemic a Catalyst ​​​​​​​

The drastic changes in Hong Kong’s social environment, along with the global Covid-19 pandemic, have created uncertainties about the business environment over the next year. For Contrendian, turnover in the short run has suffered, and the investment attitude of individuals and private companies is set to become even more cautious. Many companies have slashed expenditure in the near term and are therefore reluctant to explore new technologies.

Despite this, new opportunities have emerged for start-ups, as the pandemic has compelled many businesses to adopt new technologies to stay afloat. For instance, new platforms have been created to link up restaurants and food delivery companies during the pandemic, mitigating the impact of social distancing measures on catering establishments. Meanwhile, online shopping and video conferencing software have also gained in popularity. It’s clear that the pandemic has forced changes to traditional operation modes and accelerated the integration of the old and new economies. Ho and Cheung are optimistic that there will still be plenty of opportunities for Contrendian after the pandemic is over, because more companies have come to realise how smart technologies can fill the gaps in traditional business models.

For now, the company has no plans to expand their business into mainland cities in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA). Ho and Cheung explained that, while banks and the financial sector in Hong Kong have been under stringent supervision, they know little about how Hong Kong fintech companies are regulated in the GBA. However, given the GBA’s enormous population and mainland consumers’ keen investment sentiment, there is clearly huge potential in the GBA for Hong Kong fintech start-ups to tap. Contrendian will explore venturing into the GBA once it has achieved success with its products in Hong Kong. Ho and Cheung called on the Hong Kong government to collaborate with the GBA’s regulatory authorities and draw up mutual recognition policies to help Hong Kong financial practitioners move into the GBA and exploit the potential there.