Hong Kong and Singapore are caught up in a two-horse race to develop the most comprehensive fintech ecosystem and house the lion’s share of the US$22.2 billion invested in financial tech in Asia.
However, while the competitive nature of the sister cities often gives rise to sharper, best-of-breed services within the financial services industry, experts warn that a lack of coordination and consistency between Hong Kong and Singapore will confuse both fintechs and private banks looking to execute successful tech strategies.
Too many ‘testing kitchens’
Let’s take a closer look at innovation labs – essentially ‘testing kitchens’ for fintechs to trial their latest solutions within the banking system with experts on hand – which many banks offer in order to keep an eye on fintech developments.
However, one CEO at a Singapore-based fintech start-up says he is wary about the merits and ultimate goals of this particular private banking play.
“This has been nothing more than a window-dressing exercise that has set other fintechs, like us, on a wild goose chase,” he says, noting that some banks have fintech labs in both Hong Kong and Singapore and this can lead to some confusion.
“Which bank has the better programme and what makes us apply to a bank’s innovation lab based in Hong Kong or in Singapore? Is it the financial institution or the regulatory watchdogs?”
Indeed, major players including DBS, Citi and Credit Suisse Private Banking have chosen to set up their innovation labs in Singapore, while Commonwealth Bank of Australia opened its innovation lab in Hong Kong. Standard Chartered, HSBC and most recently UBS have launched testing kitchens for fintechs in both Singapore and Hong Kong.
The relatively high number of Singapore-based innovation labs is unsurprising given the Monetary Authority of Singapore’s (MAS) Financial Sector Technology and Innovation scheme, for which the regulator pledged S$225 million over a five-year period, partly in an effort to “attract financial institutions to set up their innovation labs in Singapore”.
But for Hong Kong-based fintechs that do not have sufficient capital to expand their footprints into the Lion City, the initiative is a “downer” and defeats the purpose of flushing the ecosystem with funds, a Hong Kong-based fintech CEO says.
Regulatory hotchpotch
While Singapore has undoubtedly had a head start in the fintech race, largely due to the city-state’s efforts to make it easier for fintech start-ups and banks to embrace innovation, Hong Kong is attempting to play catch up. The Hong Kong Monetary Authority (HKMA) launched a regulatory “sandbox” less than a month after MAS did so, and recently said it is piloting ten fintech apps.
Still, these regulatory reforms have not quelled concerns in Hong Kong, as the lack of coordination between the two hubs is creating an uneven playing field, industry experts warn.
A few months ago, one lobby group based in Hong Kong voiced its dissatisfaction by issuing a statement.
“Throughout Asia, there is development at different paces and without much formal cooperation among the markets, so there’s an important and growing need for consistent regulatory standards across all market participants – including incumbents and start-ups – and increased coordination locally, regionally and internationally,” said Mark Austen, CEO of ASIFMA, an independent, regional trade association with over 100 member firms including including banks, asset managers, law firms and market infrastructure service providers.
The lobby group called for improved consistency amongst Asian regulators.
“By not cooperating on fintech, Asian financial centres are putting themselves at a real disadvantage relative to the rest of the world: that traditional competitive dynamic and rivalry between the likes of Hong Kong and Singapore may actually, in this case, be a disadvantage,” Hannah Cassidy, partner at Herbert Smith Freehills in Hong Kong, said in the same statement.
As a result of its concerns, ASIFMA published a guide titled “The 10 Best Practices for Developing Fintech in the Region”.
One jurisdiction, too many regulators
Hong Kong’s multi-regulator framework makes the process of setting up businesses more difficult than in Singapore, fintechs say.
A testament to this is the recent decision by Lufax, a Chinese peer-to-peer lending platform founded by Ping An Group, to pick Singapore as its base. According to a report by the SCMP, Lufax’s co-chairman and chief executive, Gregory Gibb, said that regulation was a key factor in the group’s decision. Gibb said Singapore’s fintech regulatory regime is “clear and established” and noted that it was “easy for Lufax to deal with just one regulator at a time”.
Indeed, in addition to channelling funds into the fintech ecosystem, Singapore has inked fintech agreements with nine countries/cities around the globe to display its commitment to growing the sector. MAS has signed fintech cooperation agreements – documents that promise the exchange and sharing of information and trends related to the countries’ respective fintech firms – with Thailand, Denmark, France, Japan, the government of a Southeastern state in India, Korea, the UK, Switzerland and the US.
Hong Kong watchdogs, meanwhile, have been slower to move, having signed similar fintech cooperation agreements with Australia and the UK this year. Gibb noted that Hong Kong’s multi-regulator environment has not helped the city’s image as a fintech hub. “There is no single regulator in Hong Kong taking the lead in fintech development in the different financial sectors,” he said.
In what could be seen as evidence of the lack of coordination between the regulatory bodies, the SFC entered into its first fintech agreement with the UK’s Financial Conduct Authority (FCA) five months after the HKMA and the FCA signed a similar agreement.
“Two regulators in Hong Kong, one regulator in Singapore and if you are looking into the insurance sector, there are more regulatory hurdles,” one fintech CEO complained. “If Hong Kong and Singapore are serious about working together, perhaps they need to address the fact that many fintechs tend to look at both cities together as part of their Asia strategy.”
So it seems that before Hong Kong and Singapore work together to establish a stronger and consistent dialogue on fintechs, the cities, particularly Hong Kong needs to establish stronger and consistent intra-regulatory dialogues.
Until the sister cities address this issue, private banks and private bank-focused fintechs will continue to stab in the dark with their tech strategies.
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