Hong Kong banks continue to explore blockchain technology despite regulatory hurdles

According to a KPMG report, Hong Kong’s fintech market, especially those related to blockchain technology, will flourish in 2017 due to increasing collaboration between fintech and financial services companies.

The Hong Kong Banking Outlook 2017 [PDF] report cited heavy investment by service industry giants in the fintech sector as the main reason for the “rapid” development of the fintech industry in Hong Kong.

The report also added that Hong Kong banks are very interested in blockchain technology, especially its potential in the payment and lending sectors. It has been proven that the innovation (the underlying technology of Bitcoin) can significantly improve the operational efficiency of the payment industry, because it eliminates the need for intermediate settlement institutions, and the technology can settle at a lower cost, faster and more instantly.

A recent report from the Hong Kong Monetary Authority (HKMA) noted that despite the many benefits of using blockchain technology, it could also raise “significant legal and regulatory issues.”

Last month, Hong Kong Monetary Authority (HKMA) executive director Li Peilun said that "[blockchain] has great potential, but there are still many things to be resolved about the technology." The People's Bank of China also specifically pointed out the risk of money laundering in the technology.

Hong Kong banks have also raised questions about the potential for misuse of blockchain technology.

Noting HAMKA’s regulation of the technology, the KPMG report also added:

Hong Kong banks should not stop exploring blockchain, but instead carefully monitor its development and take steps to strengthen risk management procedures regarding the technology.

A firm plan to advance financial technology

Despite warnings about the use of blockchain technology, Hong Kong banks are steadfastly pressing ahead with their fintech plans, seeking to compete with Singapore, Japan and others to become Asia’s financial technology hub.

Earlier this year, Hong Kong’s financial chief pledged to invest HK$17 billion (US$2.11 billion) in the development of the fintech ecosystem, and the HKMA recently established a fintech innovation centre and regulatory sandbox to allow banks to conduct proof-of-concept trials and services before rolling out fintech solutions into the Hong Kong economy.

Earlier this month, the HKMA and the UK Financial Conduct Authority (FCA) also signed a fintech innovation cooperation agreement. Despite increasing competition from Singapore and New York, London remains the global fintech center.