Hong Kong Government Sets Up Fintech Sandbox

The Fintech Supervisory Sandbox (FSS), he said, is catered to and for fintech and other technology initiatives of authorized institutions (AIs).

He notes that the regulator has observed more of these initiatives being implemented or considered by the banking industry.

"We see the need for a supervisory arrangement with greater flexibility to enable AIs to conduct more timely live tests of these initiatives before their formal launch. This will enable AIs to gather real-life data and user feedback on their new fintech products or services more easily in a controlled environment, so that they can make refinements to them as appropriate," said Yuen.

AIs will be allowed to, within the FSS, conduct trials of their initiatives with actual banking services and a limited number of participating customers such as staff members or focus groups of selected customers.

Non-Compliance
Within the sandbox, AIs will not have to fully comply with the HKMA's supervisory requirements during the trial period. This is similar to what the Monetary Authority of Singapore (MAS) has proposed. Singapore's consultation paper on the matter closed on July 8, the results of which are expected in early October this year. 

Among the HKMA's requirements for initiatives in the FSS is that AIs clearly define the scope and phases of the trial. Also, adequate measures should be implemented to protect the interests of customers during the trial.

Yuen said these would include a proper process for selecting customers that understand the associated risks and voluntarily join the trial, enhanced complaint handling procedures, a mechanism for timely and fair compensation of customers' financial losses caused by any failures of the trial, and appropriate arrangements for customers to withdraw from the trial.

Risk management controls should also be implemented to address any risks posed by the trial run. The trial should also be subject to close monitoring if any significant problems or incidents arise. The HKMA stated that the FSS should not be used by AIs as "a means to bypass applicable supervisory requirements."

Yuen added that the regulator does not intend to stipulate an exhaustive list of the supervisory requirements that may potentially be relaxed within the FSS. "As the FSS is a new supervisory arrangement, the HKMA will refine the arrangement over time in light of the implementation experience and industry development," he said.