On 6 September 2016, the Hong Kong Monetary Authority (HKMA) launched a fintech supervisory ‘sandbox’ to allow banks to test innovative fintech products and initiatives within a live, controlled environment, before they are fully compliant.
Unlike similar schemes introduced by regulators in other Asia-Pacific financial centres, the HKMA model is available only to Hong Kong authorized institutions (AIs), and not to start-ups and other unlicensed businesses. This is consistent with the HKMA’s aim to focus on those technologies that are increasingly being implemented or explored by the banking industry globally, such as mobile-centred services, robotics, biometrics and block chain/distributed ledger technology. The HKMA also recognizes the need for the arrangements to provide genuine flexibility to AIs to test and refine new products quickly, through the use of real-life data and user feedback.
The HKMA has not prescribed a specific application process or a precise list of the supervisory requirements that it is potentially willing to relax for the duration of the testing period. Access to the sandbox will be assessed by the HKMA on an individual basis.
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Within the sandbox, AIs will be allowed to conduct trials that involve actual banking services and a defined group of participating customers, provided that certain fundamental measures and controls are put in place, including:
- Customer protection measures, including an informed and voluntary participation process, mechanisms to deal with complaints and withdrawals, and provisions for compensation for financial loss as a result of failures within the trial;
- Appropriate risk management controls to mitigate and address cyber security, system disruptions and other risks posed to the AI’s operations and customers outside the scope of the trial;
- Clearly defined scope, duration and termination arrangements of the trial. The relevant systems and processes need to be ready, and close monitoring during the trial will be expected to ensure timely identification of issues and prompt resolution, such as those involving customer communications.
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Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
