Hong Kong's banking regulator said it has launched a regulatory regime known as a "sandbox" for financial technology innovation in the banking sector, amid fears the city is losing ground to Australia in the fintech race.
The initiative, which begins September 6, would help maintain Hong Kong's competitiveness as a financial hub by supporting the development of fintech in the banking sector, Hong Kong Monetary Authority (HKMA) chief executive Norman Chan told a conference.
"The sandbox allows banks to conduct tastings and trials of newly developed technology on a pilot basis. Within the sandbox, banks can try out their new fintech products without the need to achieve full compliance with the HKMA's usual supervisory requirements," HKMA said.
Chan said the financial centre "must remain diligent all the time if we wish to continue to maintain our competitive edge," although he did not believe Hong Kong was lagging rival fintech hubs.
The sandbox will only apply to banks piloting the use of fintech innovations, such as distributed ledger technology or robo-advisory, as opposed to start-up fintech firms, the HKMA said.
In a circular distributed on Tuesday, the HKMA told banks in the city they can launch fintech pilots for banking services involving a "limited number of participating customers" provided the bank properly tests the technology, and sufficient risk management, customer protections and monitoring are in place.
Banks wishing to use the sandbox will need to directly apply to the HKMA for permission.
Countries globally, including in Singapore, Australia and Britain, have established more far-reaching regulatory incubators to allow fintech firms to experiment with new business models and products without falling foul of financial rules.
Although the approaches have differed in each country, they generally afford fintech firms temporary waivers or exemptions from rules such as capital requirements or management experience.
Despite a government push to promote Hong Kong as a fintech centre, critics say the semi-autonomous Chinese territory has been slow to accommodate fintech firms, whose capital-light, online-focused business models struggle to satisfy traditional licensing requirements.
In July, Reuters reported that Hong Kong had fallen behind Singapore, which has deployed a combination of state-funding and light-touch regulation to become Asia's leading fintech hotspot.
The sandbox concept allow regulators to become familiar with new business models, said James Lloyd, Asia-Pacific fintech leader at financial consultancy EY in Hong Kong.
"As a top three financial hub, Hong Kong needs to plan for the new types of work that innovative technologies, processes and business models will bring."