Hong Kong Monetary Authority joins R3 consortium to test blockchain transactions

The Securities and Futures Commission, an independent statutory body responsible for regulating the securities and futures markets in Hong Kong, a world financial centre, has joined the R3-led financial blockchain consortium.

The Hong Kong regulator is working with R3’s many members, including banks and technology developers, to jointly test a blockchain ledger to record and settle securities and futures trades, The Wall Street Journal revealed.

This is another example of banks and regulators working together to move blockchain prototypes out of laboratory environments and into real-world financial systems.

“Both parties need to understand why the technology works as it does and what needs to change to fit the current environment,” said Charley Cooper, managing director of R3.

Integrating FinTech into the financial centre

As a traditionally technology-leading region, Hong Kong regulators are moving in a friendly direction towards fintech innovation and development. A recent report by services giant KPMG also encouraged local banks to continue researching and developing financial technologies such as blockchain.

At the end of 2016, the Hong Kong Monetary Authority (HKMA) also established a "Fintech Innovation Center" and a regulatory sandbox to promote the development of financial technology in the financial services sector. In particular, blockchain technology was praised by Cyberport, a well-known technology center in Hong Kong, as being able to subvert the financial industry at the 2016 Fintech Conference.

According to Oliver Bussmann, former technology chief at UBS Group AG and blockchain advocate, Hong Kong has already tested blockchain platforms. Singapore, the U.K. and Canada have also taken similar regulatory steps, surpassing the U.S. Bussmann said: Compared with these countries, the U.S. is about a year behind.

Expenses incurred in running blockchain projects and prototypes in the HKMA’s sandbox will be reimbursed by the institution, creating an incentivized environment for the development and testing of new financial technologies.

Notably, Hong Kong Finance Minister John Tsang Chun-wah pledged HK$1.7 billion (about US$2.11 billion) early last year to build the necessary infrastructure to support fintech startups and the region’s development. The HKMA and the UK Financial Conduct Authority also signed an agreement to promote mutually beneficial cooperation between the two financial markets, especially fintech innovation.

Recently, Nasdaq in New York also provided its proprietary blockchain technology to the Hong Kong Stock Exchange. Many market operators around the world have also turned to blockchain technology, such as Australia, South Korea, Japan, Canada, the United Kingdom, etc.