Hong Kong and Singapore in lockstep for regtech adoption

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Hong Kong Monetary Authority (HKMA) has launched Regtech Knowledge Hub to heighten awareness of regulatory compliance in fintech-related fields and encourage the sharing of expertise. In a similar move last year, the Monetary Authority of Singapore set aside SGD42 million (about USD35.5m) for grant schemes to boost digital adoption and regtech.

Regtech, an amalgamation of the words regulatory and technology, is a subset of fintech that combines regulation and technology to improve risk management and compliance. Regtech companies have flocked to Hong Kong and Singapore in recent years to assist clients and regulators in a complex environment.

The knowledge hub is part of HKMA’s two-year regtech adoption roadmap announced in November 2020 that allows banks and regtech providers to share success stories and implementation experiences. The hub shares practical industry case studies and stores HKMA’s regtech-related circulars, guidance papers and research reports.

Hong Kong and Singapore in lockstep for regtech adoption, Etelka Bogardi
Etelka Bogardi

“The promotion of regtech is one the highlights of the HKMA’s wider support of fintech adoption in Hong Kong,” Etelka Bogardi, partner at Norton Rose Fulbright in Hong Kong, told Asia Business Law Journal. “What has been particularly impressive is the close engagement by the HKMA with the industry and the continuous dissemination of practical and actionable information.”

Bogardi said the Regtech Adoption Practice Guide Series was one example of the information provided.

However, Bogardi added that securing internal budgets, ensuring system interoperability with legacy systems and products, and securing talent remained challenges for financial institutions in Hong Kong when adopting regtech.

HKMA’s regtech roadmap and fintech 2025 strategy encourage market participants to engage with this new development..

For lawyers wanting to stay up to date with regtech developments, Bogardi noted two challenges:

    1. the need to stay on top of developments and the sheer number of applications and providers; and,
    2. developing a basic understanding of the underlying technologies and how these can be harnessed while ensuring compliance.

“It is likely that we will see a step-change in the use of regtech solutions from quantitative to more qualitative use cases,” she said. “There is a big jump between regtech such as optical character recognition to using artificial intelligence-powered systems for entire risk-management processes in banks. This will throw up interesting and challenging questions for regulatory and data-focused lawyers.”

In other parts of Asia, Taiwan, Japan and South Korea have also taken steps to show their interest in developing regtech solutions. However, deep financial markets and large pools of investors with an interest in new financial products and services make it possible for Singapore and Hong Kong to lead the way when it comes to supporting regtech.

Hong Kong and Singapore in lockstep for regtech adoption, Bryan Tan
Bryan Tan

Bryan Tan, partner at Reed Smith in Singapore, said: “Regtech has naturally been introduced in financial services in Singapore and – to a lesser extent – the legal industries, as these have been mooted a few years ago.

“We also note that the area has been attracting more venture capital investment recently,” said Tan.

Regtech adoption in Singapore, however, has not reached its full potential. Tan said this was due to regulation and compliance still developing as financial products evolved, in addition to environmental, social and governance (ESG) requirements. This meant a lot more areas to regulate – hence the redeployment of regtech.

“The nascent phase for new technology is always the selection of the final form ­– think the video-format wars,” said Tan. “So, the problem now may be too many offerings and too many are not fully developed. In this crowded marketplace, it is possible to get overwhelmed by the choices and the tendency is to stay on the sidelines paralysed by choice.”

With thousands of regtech providers currently available, Tan is particularly hopeful for solutions that obtain updated information from diverse sources for compliance teams.

Tan said this would require solutions that help collect compliance data from customers “to meet know-your-customer requirements as well as solutions that collect data for ESG compliance and reporting”.