Published: 28 Jun 2021
Category: Fintech , Business Insights

5 Aspects of Compliance for Hong Kong Fintech Companies

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Fintech companies hit the business world by storm, offering innovative ways to bank and conduct business by leveraging cutting-edge technology. Hong Kong now acts as a gateway to the future of fintech, after establishing itself as a major fintech hub.

With a proven financial sector, deep talent pool, safeguard of intellectual property, and it’s gateway to Mainland China, Hong Kong is well positioned to lead fintech development. Flexible financial policies, such as the movement of capital, attract global investors who deploy capital in Hong Kong and springboard to Mainland China and the rest of South East Asia.

Bob Feng, Director of APAC Business at Enfusion, a U.S. fintech that opened its APAC headquarters in Hong Kong, commented in a Bloomberg feature, “The best thing about opening a business in Hong Kong is how easy it is. The government removed all of the barriers. Paired with the broad range of high-quality professional services that are available here, there’s little that you could do to make the process easier. We didn’t have any problems or headaches at any step of the process.”
 

Fintech regulation Hong Kong

Fintech rules and regulations in Hong Kong fall under the general existing body of Hong Kong laws and regulations. Fintech compliance includes being registered by the SFC. There are also regulated activities that fall under SFO which apply to fintech. These include dealing with and advising on securities and futures, corporate finance, leveraged foreign exchange trading, asset management and more. Another financial regulation in Hong Kong that may apply is Banking Ordinance (BO).
 

Fintech funding and support initiatives

Of course, with this growth came fintech regulatory compliance and, whilst established banks may have the resources to address regulatory costs are a consideration for fintech start-ups. Fintech funding is available under a variety of government initiatives and private sector funding. The SME funding scheme which provides financial support for tech-startups in Hong Kong. Both Cyberport and the Hong Kong Science and Technology Parks (HKSTP) offer incubation programmes which include tech funding. HKSTP’s TecONE programme provides information and consultation services to companies interested in Hong Kong’s funding and support programmes under the Innovation and Technology Fund and HKSTP.
 

Fintech compliance checklist

The HKMA focuses great effort on balancing flexibility for innovation and ensuring proper safeguarding for fintech consumers. It established The Fintech Facilitation Office (FFO) in 2016, which facilitates the healthy development of fintech and fintech compliance in Hong Kong. To stay updated on regulatory changes and ensure they are ahead of scrutiny, every fintech compliance team must track and analyse any regulatory developments, capture data, and report that to the board. They must also develop comprehensive policies and procedures, training teams to stay updated with any new compliance issues as they arise.
 

5 compliance aspects to consider are:

  • License to operate – in addition to the usual licences required to set up a company in Hong Kong, a fintech may require an SVF licence. This refers to Store Value Facility Licences (prepaid instruments with monetary value). Hong Kong has been an early adopter of these device-based SVF’s. Moneylenders are subject to the ‘Money Lenders Ordinance’. Payment systems firms and retail payment systems providers must be licensed under the ‘Payment Systems and Stored Value Facilities Ordinance’ (PSSVFO).

  • Data privacy – The Hong Kong Government is currently reviewing and possibly amending the Personal Data (Privacy) Ordinance (PDPO). They aim to strengthen the protection for personal data, better aligned with the standards set by the General Data Protection Regulation (GDPR) of the European Union. Current data privacy laws can be reviewed here. Hong Kong is actively promoting cloud technology. In 2018, the Asia Cloud Computing Association (ACCA) rated Hong Kong second on its Cloud Readiness Index.

  • Intellectual property – Intellectual property is protected by law to enable innovators to earn recognition or financial benefit for their creations. IP rights protect software, hardware, and branding associated with fintech. Copyright can protect computer code but fintech's have been known the reverse engineer computer programs. Design Patent applies to any physical aspects within the fintech universe, such as interfaces, electronic cards, and machines. Trade secrets can protect confidential backend server processes and codes.

  • Anti-money laundering – Hong Kong's anti-money laundering regulations are based on the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Banking Ordinance (BO). These cover risk-based measures which must be put in place and appropriate accounting systems. Other relevant anti-money laundering legislation includes the Organized and Serious Crimes Ordinance (OSCO) and the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP).

  • Transaction Monitoring –  Under the AMLO, Hong Kong fintech must have a monitoring system in place to detect transactions that indicate potential money laundering activity. It must continuously monitor customer accounts for suspicious activity, such as unusually large transactions and ones which contravene the law or involve high-risk countries.

 
Changing the face of the way we do business, fintech has captured the world’s attention, with large investments via private equity, banking, venture capitalists, and brokerage companies. As the industry rapidly develops, fintech companies must stay ahead of the game on compliance issues to succeed.

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