Hong Kong Towards a Leading Global Fintech Hub by andrew tang

HONG LEADINGTOWARDSKONGAGLOBALFINTECHHUB BEST PRACTICES AND RECOMMENDATIONS THROUGH EXAMINING OTHER WORLD HUBS

1 ContentsContents ExecutivePreface StudyIntroductionSummaryBackground Part I: Examination of Seven Fintech Hubs: London, New York, San Francisco, Shanghai, Singapore, Tokyo, And Zurich Four Key Areas Influencing Fintech Hub Success I. Regulation II. Government Support III. Business Environment IV. Talent Ten Key Features of a Global Fintech Hub PART II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Ten Opportunities for Strengthening Hong Kong’s Position as a Global Fintech Hub 78191254 66483522 76

About Fintech Research Project

The Fintech Research Project is funded by the Research Grants Council (RGC) under the Theme-based Research Scheme 2018-19, titled “Contributing to the Development of Hong Kong into a Global Fintech Hub”. The project aims to provide a roadmap for transforming Hong Kong into a global fintech hub through the delivery of policy recommendations, scholarly contributions, and industrial impact. A team of researchers from HKUST and other universities with expertise spanning finance, information systems, statistics, computer science, accounting, and economics are tackling eight major research tasks that cover blockchain, cybersecurity, risk preference, robo-advising, artificial intelligence / machine learning, systemic risk, financial innovation policy, and manpower development.

About HKUST Business School

Founded in 1991, the HKUST Business School is young, innovative and committed to advancing global business knowledge. The School has forged an international reputation for world-class education programs and research performance, and has received many top global rankings. It is one of the first Asian business schools accredited by both AACSB and EQUIS. The School strives to contribute to the economic and social advancement of the region by developing future leaders who possess an innovative and entrepreneurial spirit as well as a strong sense of responsibility. We also take active steps to promote knowledge advancement in many significant business areas. For more information, please visit www.bm.ust.hk.

Ms. Marie Raymond of Seriously Orange Studio Ltd

Research, Editorial, Design and Production: Prof. Kar Yan Tam of HKUST Business School, Project Coordinator of Fintech Research

Mr. Lionel Wilson Mok, Research Assistant, HKUST Business School

Mr. Andrew Tang of Jamfactory The Media Technology and Publishing Center of HKUST Enquiries: fintech@ust.hk

Ms.ProjectChristy Yeung, Head of Fintech and Green Finance Research, HKUST Business

This report documents the findings and insights from research conducted by HKUST Business School under the Fintech Theme-based Research Project (No. T31-604/18-N), funded by the Research Grants Council (RGC). This report also includes initial findings of a project funded under the Strategic Public Policy Research Scheme of the Policy Innovation and Coordination Office (PICO) on “The Development of Fintech, Insurtech, and Regtech Manpower to Sustain Hong Kong as a Leading Global Financial Center”.

Ms. Winnie Chan, Research Associate, HKUST Business School

We would like to thank RGC and PICO for their generous support, the Fintech Research Project Advisory Board, and our industry partners for their valuable input.

Ms.SchoolTiffany Lau, Assistant Manager of Fintech Research Project, HKUST Business School

Fintech is a dynamic, disruptive, and game-changing force that has transformed the attitudes and behaviors of businesses and individuals towards financial products and services. Its growing contribution to the global economy speaks for its importance.

4. Comsore. | Global Perspectives: Digital and CTV trends to watch in 2021 (Dec 2020). | Insights/Presentations-and-Whitepapers/2020/Global-perspectives-Digital-and-CTV-trends-to-watch-in-2021https://www.comscore.com/

3. KPMG. | Pulse of Fintech H1’21 (Aug 2021). | https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/08/pulse-offintech-h1.pdf

PrefacePreface

As a well-established international financial center with 96% of its adult population already online4 and a Digital Competitiveness ranking second only to the US,5 Hong Kong naturally has a competitive edge to become a successful global fintech hub. With a focus on leveraging Hong Kong’s strengths to further its position as a leading global fintech hub, we have devised a list of strategic recommendations for Hong Kong.

1. KPMG. | Pulse of Fintech H2’20 (Feb 2021). | https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/02/pulse-offintech-h2-2020.pdf

• What are the key areas Hong Kong needs to focus on for its fintech ecosystem to grow and flourish? We hope the findings of this study and the strategic recommendations presented in this report offer useful insights and perspectives to all participants in the Hong Kong fintech ecosystem, and together, propel Hong Kong into a position of being a sustainable and vibrant global fintech hub.

The Hong Kong University of Science and Technology

• What have different international hubs done to get to where they are today?

Using a systematic approach to study a number of fintech hubs from around the world, we address the following questions:

Despite a challenging year for most industries in 2021, with fintech being no exception, global fintech investments was the third highest year on record.1 While COVID-19 may have substantially impacted individuals and companies in many ways, it has also accelerated the wide-range acceptance and adoption of digital solutions.2 The fintech industry made a strong comeback in 2021, with global fintech investments recording a remarkable US$98bn in the first half of the year.3 It is expected that fintech will continue to be resilient in the coming years.

• What are Hong Kong’s strengths and competitive advantages for becoming a leading global fintech hub?

5. IMD. | The essential factors behind digital competitiveness. | pursuing-markedly-different-but-equally-competitive-digital-transformations-WCC/4https://www.imd.org/news/updates/China-US-

• What key features identify a “global fintech hub”?

Kar Yan Tam School of Business and Management

2. Fu, Jonathan and Mishra, Mrinal. | “Fintech in the Time of COVID-19: Trust and Technological Adoption During Crises” Swiss Finance Institute Research Paper No. 20-38 (December 23, 2020). | https://ssrn.com/ abstract=3588453 or http://dx.doi.org/10.2139/ssrn.3588453

1. Regulation The comparative flexibility in regulation of London and Singapore have contributed to these two economies’ strong positions. London is well known for its sandboxes, while Singapore has made great strides over recent years by diligently working to simplify its previously complicated regulation framework. In general, most of the examined hubs appear to be integrating existing acts that govern fintech activities and consolidating the functions of supervisory agencies. Streamlining, reducing regulatory complexity, and creating more transparency between supervisory agencies appear to be common themes. Although Zurich does not have a specific regime to address fintech regulation, recent financial market laws passed were aimed at standardizing licensing requirements and further increasing customer protection in financial services.

Internationally, finance and economic organizations such as the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS) have issued guidance for national authorities who regulate and supervise fintech-related activities. Participation in international organizations not only helps foster good relations, but can also create additional opportunities for local economies and businesses.

From our research across the selected hubs, we would expect regulators to engage with fintech stakeholders and respond to industry needs more before they formulate regulatory policies. Although Hong Kong has no fintech-specific regulatory framework, fintech business operations are subject to existing financial laws and regulations. Financial activities in Hong Kong are highly regulated, and its disclosure-based regime ensures that fintech companies provide accurate information to help customers make fully informed decisions about products, services, and digital-identity measures.

5 Executive ExecutiveSummarySummary

As a leading international financial center, Hong Kong already has many elements in place to ensure its position as a successful global fintech hub. In this report, we examine seven other economies – London, New York, San Francisco, Shanghai, Singapore, Tokyo and Zurich – that are also in leading positions as global fintech hubs. By reviewing what strategies, actions and non-actions they have taken that have resulted in their current positions in global fintech, we hope to gain insight as to what steps Hong Kong can take to ensure its place among the leading global fintech hubs. With the appropriate support and guidance from the government and regulators, fintech has tremendous potential to further strengthen Hong Kong’s economy and outlook for the future.

Four Major Areas of the Fintech Ecosystem Regulation, Government Support, Business Environment, and Talent are four areas of the fintech ecosystem that greatly impact its long term development. They are not completely separate, as some issues could fall into one or more of these domains. In addition, more research and development is required for all four of these areas in order to maintain innovation and growth in the fintech industry.

1. The number of existing qualified professionals in the sector;

6. How to best cultivate future generations of talent.

6. HKUST Business School. | The Fintech Talent Development, Competency, and Manpower Study (June 2020). | https://www.bm.ust.hk/en-us/media-resources/overview/publications/reports/issue:2/ Executive Summary

4. The number and type of existing city-level or country-level programs to develop talent;

5. The challenges that educational institutions have in developing quality training programs and schemes to reskill existing workers; and

3. Effective measures to attract foreign talent;

Aside from regulatory policies, the government can facilitate the development of the fintech industry by: (1) providing financial support through public funding; (2) organizing programs that encourage innovation and entrepreneurship in the industry; and (3) providing opportunities that give the fintech industry access to experts’ advice, the latest information, and public services. Governments should regularly assess the fintech landscape locally, regionally, and globally, to draw up development plans for the short-, medium-, and long-term.

3. Business Environment

4. Talent To keep up with the growing demand for talent, a global fintech hub will need to have a stable and sustainable supply of skilled personnel by sourcing from the existing workforce, attracting foreign workers who are already equipped with the required skills, as well as nurturing new talent from their local education systems. Governments must examine the following to formulate an effective talent policy:

2. Government Support

2. Hiring trends for the local and global fintech industry;

With local and global situations in constant flux, fintech hubs will maintain stronger positions if they have the ability to produce, retain, and attract top talent both locally and globally. Governments need to formulate effective short-term policies to provide enough skilled people to overcome the current shortage. Simultaneously, governments need to design a long-term talent policy to keep up with the predicted exponential growth of fintech in the future. A multi-pronged approach may include:

1. Funding support to long-term policy instruments;

2. Measures to attract foreign talent; 3. Programs for upskilling existing workers; and

Based on our observations of the selected hubs’ regulation, government support, business environment, and talent landscape related to fintech, we have identified the following key features:

2. A strong cybersecurity and consent-based digital identity infrastructure, for a secure and privacy-respecting environment.

Ten Key Features of a Global Fintech Hub

9. Further education and retraining programs that are strategically planned and executed to upskill and reskill the existing workforce.

5. An enabling and open government that provides a high fault-tolerance and inclusive sandbox environment to encourage innovation.

6. A robust fintech community that is actively engaged in different types of collaboration through agreements, conferences, and other networking events.

8. A pipeline of fintech talent through connecting the universities and the industry. Internships will give students the opportunity to gain industry experience.

10. High awareness, acceptance, and trust-building towards fintech for all members in the society, including the government, industry players, and the people they serve.

1. A comprehensive, clear, and transparent regulatory and licensing framework that is highly responsive.

4. Forward-looking strategic plans for the fintech industry, and a dedicated task force to implement these plans.

3. A favorable legal framework and tax system for enhancing business and generating innovation.

7. Policy-driven public and private funding support are available and balanced.

Executive Summary

4. Changes to the current lower and higher educational curricula.

8 Hong LondonKong InsufficientInsufficientInsufficientInsufficient InsufficientInsufficientInsufficientInsufficientSufficientSufficientSufficientSufficient SufficientSufficientSufficientSufficientSanShanghaiFrancisco ZurichTokyoNewSingaporeYorkII. SUPPORTGOVERNMENT Hong LondonKong InsufficientInsufficientInsufficientInsufficient InsufficientInsufficientInsufficientInsufficientSufficientSufficientSufficientSufficient SufficientSufficientSufficientSufficientSanShanghaiFrancisco ZurichTokyoNewSingaporeYorkI. REGULATION Performances of Hong Kong and Other Selected World Hubs –Sufficiency Ratings of the Key Areas Vital for a Fintech Ecosystem Executive Summary

9 Hong Kong Hong LondonLondonKong InsufficientInsufficientInsufficientInsufficientInsufficientInsufficientInsufficientInsufficient InsufficientInsufficientInsufficientInsufficientInsufficientInsufficientInsufficientInsufficientSufficientSufficientSufficientSufficientSufficientSufficientSufficientSufficient SufficientSufficientSufficientSufficientSufficientSufficientSufficientSufficientSanSanShanghaiShanghaiFranciscoFrancisco ZurichZurichTokyoTokyoNewNewSingaporeSingaporeYorkYorkIV. TALENT III. ENVIRONMENTBUSINESS The sufficiency ratings of a hub provide a general understanding of its overall performance reflected by its strategic focus or direction, but they do not provide any direct indications of the efficiency of usage of available resources. The ratings also do not provide any direct comparisons between any two hubs. Executive Summary

We analyze Hong Kong and each of the selected hubs against the 10 key features to determine the sufficiency of resources and efforts of each hub in the four major areas that we identify to be vital for any fintech ecosystem. Below is a snapshot of Hong Kong’s sufficiency of resources and efforts in the four major areas:

HONG KONG Regulation

Ten Opportunities for Strengthening Hong Kong’s Position as a Global Fintech Hub

The sufficiency ratings of a hub provide a general understanding of its overall performance reflected by its strategic focus or direction, but they do not provide any direct indications of the efficiency of usage of available resources. While there is some room for improvement in all areas, Hong Kong’s dedication in fintech regulation, government support, and business environment are quite strong, but relatively weaker in the area of talent.

To bring Hong Kong’s status to the top tier among global fintech hubs, Hong Kong will need to strike a balance between promoting innovation and encouraging effective competition while protecting clients and investors via its regulatory regimes. We identify 10 opportunities in the areas of policy and regulation, innovation and technology, and talent cultivation and development, which policymakers can strategically leverage to increase Hong Kong’s fintech capabilities.

Business Environment Government Support Talent Performances of Hong Kong and the Other Selected World Hubs

10 Executive Summary

InsufficientInsufficient InsufficientInsufficientSufficientSufficient SufficientSufficient

3. Transform Hong Kong into a regional fintech sandbox by attracting local and regional participants to develop their fintech products and solutions in Hong Kong’s sandbox environment. This would expand Hong Kong’s influence on regional fintech developments.

11 Executive Summary

8. Create a compulsory internship scheme specific to fintech students to prepare students to meet future market demand.

7. Review, evaluate and promote the tax deduction policy for eligible R&D activities to increase innovation in fintech R&D.

10. Review and evaluate the overseas talent scheme and allow more flexibility, including remote work approval, for fintech companies to hire overseas fintech talent.

5. Improve the effectiveness and impact of public funding on different stages of innovation.

9. Establish a stronger certification link between Continued Education Fund (CEF), Qualification Framework (QF), and the internship scheme so as to offer on-the-job training opportunities to the existing workforce to help meet current market demand.

2. Establish a fintech infrastructure strategy to promote fintech development and financial inclusion. A widely adopted, secure, and privacy-respecting fintech infrastructure to reinforce Hong Kong’s position as an international fintech leader.

6. Establish a centralized incubation funding system by consolidating the resources from public and private sectors. This would attract both local and Asia Pacific startups and activate the flow of R&D, fintech talent, and investments.

4. Develop the Commercial Data Interchange (CDI), one of the HKMA’s major initiatives named under its Fintech 2025 strategy. The goal is to improve the data landscape to enhance financial development, while at the same time protecting customers’ rights to consent and privacy.

1. Establish a Hong Kong Fintech Ecosystem Committee (The Committee ), which will become an effective platform to coordinate with different fintech stakeholders and the fintech community to streamline all necessary policies, procedures and resources for fintech development.

Many governments have been devoting substantial resources into fintech development. Most of the top ranking nations have retained their position in both regional and overall rankings, indicating their continued effort to develop fintech capabilities. Among listed nations, 17 out of 83 have entered the ranking for the first time, which demonstrates the strong presences new entrants have made in fintech in the past year.

12 Introduction EUROPE RankinRegiong RankinOverallg Movement Country 1 2 ±0 United Kingdom 2 5 ±0 Switzerland 3 7 ±0 Sweden 4 8 ▼ -2 The Netherlands 5 9 ▲ 2 Germany 6 10 ▼ -6 Lithuania 7 11 ▼ -1 Estonia 8 13 ▲ 1 Finland 9 16 ▼ -3 Spain 10 18 ▼ -1 Ireland 11 19 ▲ 13 Russia 12 20 ±0 Denmark 13 22 ▼ -6 France 14 24 ▲ 3 Norway 15 25 ▼ -2 Luxembourg 16 27 ▼ -2 Austria 17 29 ▼ -3 Belgium 18 33 ▲ 16 Latvia 19 34 ▼ -6 Portugal 20 36 ▼ -7 Poland 21 37 ▼ -13 Italy 22 38 ▲ 10 Cyprus 23 39 ▲ 17 Bulgaria 24 40 ▲ 4 Turkey 25 41 ▼ -10 Czechia 26 42 ▼ -9 Malta 27 48 ▼ -5 Ukra in e 28 50 ▲ 4 Slovenia 29 51 ▲ 2 Hungary 30 52 new Li ec htenstei n 31 54 ▲ 3 Romani a 32 56 new Croati a 33 58 ▼ -17 Greece 34 60 new Slovakia 35 63 new Georgi a 36 74 ▼ -15 Belaru s LATIN AMERICA & CARIBBEAN RankinRegiong RankinOverallg Movement Country 1 14 ▲ 5 Brazil 2 17 ▲ 46 Uruguay 3 32 ▼ -2 Mexico 4 45 ▼ -5 Colombia 5 47 ▼ -12 Chile 6 49 ▼ -11 Argentina 7 62 ▼ -7 Peru 8 67 new Belize 9 69 new Ecuador 10 82 new Venezuela NORTH AMERICA RankinRegiong RankinOverallg Movement Country 1 1 ±0 United States 2 12 ▼ -3 Canada MIDDLE EAST & AFRICA RankinRegiong RankinOverallg Movement Country 1 3 ▲ 9 Israel 2 28 ▲ 6 United Arab Emirates 3 31 ▲ 11 Kenya 4 44 ▼ -7 South Africa 5 57 ▼ -5 Nigeria 6 59 new Seychelles 7 61 new Rwanda 8 64 ±0 Uganda 9 65 new Saudi Arabia 10 68 new Tunisia 11 71 ▼ -13 Ghana 12 72 ▼ -12 Egypt 13 73 ▼ -8 Lebanon 14 75 new Jordan 15 76 new Zimbabwe 16 79 new Somalia 17 80 new Cameroon 18 81 new Iran 19 83 new Ethiopia ASIA PACIFIC RankinRegiong RankinOverallg Movement Country 1 4 ▼ -1 Singapore 2 6 ▲ 2 Australia 3 15 ▲ 6 China 4 21 ▲ 1 Japan 5 23 ▼ -8 India 6 26 ▼ -8 South Korea 7 30 ▲ 15 New Zealand 8 35 ▲ 15 Taiwan 9 43 ▲ 4 Indonesia 10 46 ▼ -10 Malaysia 11 53 ▼ -7 Philippines 12 55 ▼ -16 Thailand 13 66 new Kazakhstan 14 70 ▼ -19 Vietnam 15 77 ▼ -15 Pakistan 16 78 ▼ -17 Bangladesh Introduction Fintech, an amalgam of the words “finance” and “technology”, generally refers to financial services delivered through and enhanced by the use of technology. In recent years, its fast-paced growth around the world, facilitation of easily accessible, around-the-clock, and lower-cost financial services for customers, and a global market value worth billions in US dollars, fintech has contributed greatly to the financial services industry. Fintech is the new industrial revolution for banking and financial services. With appropriate support from the government and regulators, fintech can be a strong leverage for strengthening the economy – one reason governments around the world have already dedicated significant effort and resources to develop fintech. Source: 2021-v1.2_30_June.pdfuploads/2021/06/Global-Fintech-Rankings-https://findexable.com/wp-content/ RankingsRegional [ Exhibit 1 ] : Regional Rankings of Global Fintech Index 2021 by Findexable

10.www.longfinance.net/media/documents/GFCI_29_Full_Report_2021.03.17_v1.1.pdfFinancialServicesandtheTreasuryBureau.|

e.g.

Failing to keep up with the world’s fintech technology developments would negatively affect Hong Kong’s overall competitiveness. Hong Kong is a well-established international financial center. As of 2019, the financial services sector accounted for more than 21% of Hong Kong’s GDP and provided over 270,000 jobs.7 As of December 2020, Hong Kong’s stock market was the third largest in Asia and the fifth largest in the world, with more than 2,500 listed companies and a total market capitalization reaching US$6tn.8 The latest Global Financial Centres Index (GFCI) released in March 20219 ranked Hong Kong at fourth, ahead of Singapore, Tokyo, Zurich, and San Francisco, but behind New York, London, and Shanghai. Hong Kong’s financial services industry has long recognized the importance of fintech. In recent years, a multitude of fintech startups have emerged with the number of fintech startups increasing from 86 in 2015 to over 600 in 2019.10, 11 Such rapid growth has revolutionized the industry and given traditional financial service providers new opportunities to enhance their offerings. Eighty-six percent of banks have already adopted or have plans to adopt fintech,12 as they recognize it is not only crucial to their business operation, but has become fundamental to the financial industry. Innovative fintech products and services such as: (1) artificial intelligence (AI) chatbots to improve customer experience; (2) blockchain to increase the security of financial transactions; and (3) big data to help banks better understand their customers and the market have greatly enhanced financial services and increased the capabilities of financial institutions. HKTDC Research. | Financial Services Industry in Hong Kong (Feb 2021). | https://research.hktdc.com/en/article/ HKTDC Research. | Financial Services Industry in Hong Kong (Feb 2021). https://research.hktdc.com/en/article/ the China Development Institute (CDI). The Global Financial Centres Index 29 (Mar 2021). https://

default/files/InvestHK_Annual%20Report%202019.pdf 12. Hong Kong Academy of

Fintech

MzEzOTI4MDY3 8.

Hong Kong cannot afford to miss out on opportunities to grow its fintech industry because the financial services industry is one of its most important economic pillars.

MzEzOTI4MDY3 9. Z/Yen and

2020). | https://www.aof.org.hk/docs/default-source/hkimr/applied-research-report/fintechrep.pdf [ Exhibit 2 ] : Implementation

2016). | https://www.fstb.gov.hk/fsb/en/publication/report/docs/Fintech_Report_for%20publication_e.pdf 11. InvestHK. | Annual report 2019.

IntroductionTheUrgent Need to Further Strengthen Fintech in Hong Kong

industryservicesFinancial

Through

Report of the Steering Group on Financial Technologies. (Feb Hong Kong: A diversified business hub. https://www.investhk.gov.hk/sites/ Finance. Fintech Adoption and Innovation in the Hong Kong Banking Industry. (May of Fintech Solutions for Continuous Growth in the Financial Services Industry solutions Consumermarket online banking, mobile payment, AI chatbot, alternative finance and investment, etc Market adoption and consumers' feedback digital footprint and data Market adoption implementing fintech solutions, banks and financial institutions are able to collect substantial amounts of data from their customers. This increased understanding of customer behavior through big data analysis and other cutting-edge fintech solutions enables them to make more effective and accurate business decisions. By continuing to enhance fintech solutions through ongoing collection of market feedback and data, they could achieve a higher fintech adoption rate, in turn driving growth in the fintech ecosystem and benefitting the financial services industry.

The drive behind fintech development cannot rely on market players alone and needs to be a government mandate. Over the past decade, the Hong Kong government and regulators have promulgated a series of measures and initiatives that have positively impacted Hong Kong’s fintech and financial services capabilities. These include: (1) the Fintech Supervisory Sandbox (FSS) in 2016; (2) the seven Smart Banking Initiatives in 2017;13,14 and (3) the issuance of virtual banking and insurance licenses. While Hong Kong has taken many steps to building a better fintech ecosystem, so have other financial hubs such as London, New York, Singapore and Tokyo. For example, the Financial Services Agency of Japan released policy priorities that promised a boost in fintech,15 the Kalifa Review of UK Fintech outlined the UK’s national strategy and delivery model for the country’s fintech development,16 and Singapore’s numerous fintech initiatives, including the launch of the digital infrastructure, Singapore Financial Data Exchange (SGFinDex), for enabling the country’s financial inclusion.17 Hong Kong not only needs to continue its fintech development to stay competitive with the world’s current top financial centers, it also needs to closely observe the other economies who are moving up in the rankings such as Seoul (South Korea), Sydney (Australia), Vancouver (Canada), and Zurich (Switzerland).

Introduction [ Exhibit 3 ] : Top 10 Global Financial Centers in Fintech on Global Financial Centres Indexes (GFCI) 25 – 29

Rank GFCI 25 GFCI 26 GFCI 27 GFCI 28 GFCI 29 1 London Beijing New York New York New York 2 New York Shanghai Beijing Singapore Singapore 3 Singapore New York Shanghai Shanghai Shanghai 4 Shanghai Guangzhou London London Hong Kong 5 San Francisco Shenzhen Singapore Hong Kong London 6 Tokyo London Shenzhen San Francisco Seoul 7 Shenzhen Hong Kong Hong Kong Beijing Beijing 8 Frankfurt Singapore Guangzhou Shenzhen Tokyo 9 Tel Aviv San Francisco San Francisco Tokyo Shenzhen 10 Paris Chicago Tokyo Zurich San Francisco Source: 13.Report.pdfhttps://www.caproasia.com/wp-content/uploads/2021/03/2021-Global-Financial-Centres-Index-29-HongKongMonetaryAuthority.| Fintech Supervisory Sandbox (FSS). | functions/international-financial-centre/fintech/fintech-supervisory-sandbox-fss/https://www.hkma.gov.hk/eng/key14. Hong Kong Monetary Authority. | Smart Banking. | https://www.hkma.gov.hk/eng/key-functions/banking/smartbanking/ 15. IFLR analyses. | Japan: 2020 strategy paper promises fintech boost. (4 February 2020). | https://www.iflr.com/ article/b1lmx6d5bm3r0z/japan-2020-strategy-paper-promises-fintech-boost 16. GOV.UK. | Policy Paper: The Kalifa Review of UK FinTech. (26 February 2021) | https://www.gov.uk/government/ publications/the-kalifa-review-of-uk-fintech 17. Monetary Authority of Singapore. | Media release: Digital Infrastructure to Enable More Effective Financial Planning by Singaporeans. (7 Dec 2020). | infrastructure-to-enable-more-effective-financial-planning-by-singaporeanshttps://www.mas.gov.sg/news/media-releases/2020/digital-

Since Hong Kong entered the Top 10 Fintech Rank of GFCI 26, it has remained one of the top-ranked global financial centers in fintech. Beijing, London, New York, San Francisco, Shanghai, and Singapore have also been among the top-ranked centers.

The Hong Kong fintech ecosystem includes a broad range of participants from different sectors and industries, from retail banking, investment management, insurance, fundraising to government, nonprofit, and education. The three major stakeholder groups are government, market, and education

Hong Kong’s fintech sector has attracted many investors and capital flow, as indicated by the tripling of fintech investments in Hong Kong from US$107.5mn to US$376mn between 2015 and 2019. 18,19 With top-class financial professionals, technology services and ICT infrastructure, and a growing fintech adoption rate, Hong Kong has a solid foundation for fintech to flourish. With the appropriate government support complementing its natural attributes, Hong Kong’s fintech industry is almost guaranteed to help Hong Kong retain its competitiveness and even surpass other major financial centers in becoming a leading international fintech hub.

kong-fintech-outlay-doubles-5-year-tally-well-aheadhttps://www.scmp.com/business/companies/article/2135144/hong19. InvestHK. |

1. Government organizations include the two policy bureaus, namely the Financial Services and Treasury Bureau (FSTB) and the Innovation and Technology Bureau (ITB), the regulatory units, i.e., Hong Kong Monetary Authority (HKMA), Insurance Authority (IA), and Securities and Futures Commission (SFC), and other ecosystem partners such as the Hong Kong Applied Science and Technology Research Institute (ASTRI), Cyberport, the Hong Kong Science and Technology Park (HKSTP), and InvestHK.

Investment in Hong Kong fintechs more than doubled last year, well ahead of Singapore and Australia. (1 Mar 2018). | Hong Kong Fintech Ecosystem Factsheet. (Jan 2021). | https://www.investhk.gov.hk/sites/default/

15 Introduction [ Exhibit 4 ] : Fast-rising Financial Centers in Fintech Ranking on the Global Financial Centres Index (GFCI) Some financial centers, although not among the top in the overall GFCI ranking, are still highly focused on fintech development. San Diego made the largest leap and moved up 25 spots from 53 to 28 in the most recent two years’ of GFCI fintech ranking. Busan and Geneva also moved up 10 and 14 spots, respectively. Center GFCI 28 Fintech Rank GFCI 29 Fintech Rank Change In Rank Abu Dhabi 35 29 up 6 Busan 37 27 up 10 Chengdu 32 25 up 7 Geneva 40 26 up 14 San Diego 53 28 up 25 Seoul 18 13 up 5 Sydney 21 15 up 6 Vancouver 20 14 up 6 Zurich 30 21 up 9 Source: 18.Report.pdfhttps://www.caproasia.com/wp-content/uploads/2021/03/2021-Global-Financial-Centres-Index-29-SouthChinaMorningPost.|

The Hong Kong Fintech Ecosystem

files/FintechHK%20Flyer_ENG_Jan%202021.pdf

Note: = Financial Services and the Treasury Bureau; ITB = Innovation and Technology Bureau; HKMA = Hong Kong Monetary Authority; IA = Insurance Authority; SFC = Securities and Futures Commission; ASTRI = Hong Kong Applied Science And Technology Research Institute Company Limited; Cyberport = Hong Kong Cyberport Management Company Limited; HKPC = Hong Kong Productivity Council; HKSTP = Hong Kong Science and Technology Parks Corporation; HKTDC = Hong Kong Trade Development Council; InvestHK = Invest Hong Kong; APFinSA = Asia Pacific Financial Services Association; CAIA = Chartered Alternative Investment Analyst; CFA = Chartered Financial Analyst; CISI = Chartered Institute for Securities & FintechInvestmentparticipants in Hong Kong are mainly from three major stakeholder groups: Government, Market, and Education, where Market consists of the most number of participants. : Key Stakeholder Groups of Active Participants in the Hong Kong Fintech Ecosystem EducationMarketGovernment Policy bureaus UniversitiescompaniesFintech Banks institutionsfinancialand IndustryCorporatesassociations companiesTechnology ConsumersSMEs Professional institutions Ecosystem partners Other training providers - FSTB - ITB Local universities that offer fintech and related trainings - HKMA - IA - SFC E.g., APFinSA, CFA Institute, CISI & CAIA, etc. E.g., angel investors, accelerators & incubators, banks, peer-to-peer lenders, personal investors, venture capitalists, etc E.g., ASTRI, Cyberport, HKPC, HKTDC, InvestHK Investors

FSTB

[ Exhibit 5 ]

3. Education providers include local universities, professional institutions, and any other training providers who offer fintech-related training courses and programs. The main objective is to fill any skill gaps faced by the industry through upskilling and reskilling existing workers and nurturing future talent.

Regulators

Introduction 2. Market players are the biggest stakeholder group in the ecosystem. The market is made up of over 600 fintech companies including the five unicorns (Airwallex, Amber Group, BITmex, TNG, and WeLab); over 160 banks with eight virtual banks; more than 160 insurers with four virtual insurers; close to 3,000 insurance brokers, wealth and asset managers, and securities and futures dealers; industry associations such as the Fintech Association of Hong Kong (FTAHK), the Hong Kong Association of Banks (HKAB), the Hong Kong Institute of Bankers (HKIB), the Hong Kong Federation of Insurers (HKFI), and the RegTech Association of Hong Kong (RTAHK); and investors including angel investors, venture capitalists, accelerators, and peer-to-peer lenders.

Introduction Participants in the ecosystem would perform fintech-related activities on their own or through collaboration with other participants. The level of interaction that takes place in the ecosystem represents its vibrancy and maturity, i.e., the more communication and collaboration within the ecosystem, the more dynamic and mature the ecosystem

Thebecomes.quality and quantity of activities also reflect the health of the fintech ecosystem. The four broad types of fintech activities include regulation, government support, business environment, and talent. They are also instrumental factors that affect the Hong Kong fintech landscape.

3. Business Environment includes a variety of factors and activities that could impact the market in which a fintech-related business operates such as: (1) readiness of fintech infrastructure; (2) level and quality of research activities; (3) size of the existing fintech community; (4) availability of networking opportunities; and (5) level of fintech awareness of the public. Other than financial institutions and fintech companies, fintech associations, accelerators, and investors are also key players crucial for driving a healthy fintech business environment.

1. Regulation includes laws that govern and policy initiatives that facilitate fintech activities that take place in Hong Kong or by businesses that operate in Hong Kong. Fintech regulatory sandboxes, HKMA’s “Fintech 2025” strategy, Cybersecurity Fortification Initiative, virtual banking and insurance companies licenses, virtual asset trading platform licenses, and the Personal Data (Privacy) Ordinance (PDPO), etc., are some examples of what falls under the Regulation domain.

4. Talent refers to existing and future workers who are engaged in fintech-related businesses. Key players include providers of training and education activities that facilitate the supply of talent, including universities and other public or private organizations who offer fintech and related training.

2. Government Support can be in the form of monetary or non-monetary means including initiatives and programs that are operated by public funding targeted to facilitate the growth of fintech and enhance its capabilities. Support schemes can be initiated by government bureaus, regulators, or other facilitators. Examples include the Cyperport Incubation Programme, HKSTP Science and Technology Entrepreneur Programme, Technology Voucher Programme (TVP), and Hong Kong Fintech Week.

18 Introduction

Fintech participants are also frequently engaged in research and development activities. Research in fintech is not limited to any one of the four areas. Quite the contrary, research is needed in any and all of the four domains. We consider research to be the backbone of the innovation process that drives fintech growth. Due to the nature of fintech, applied research is particularly important.

20. InvestHK. | Funding Sources. | https://www.hongkong-fintech.hk/en/why-hong-kong/funding-sources/index.html

The four areas are not completely separate. Activities by different participants within the ecosystem could fall under one or more of the above-mentioned domains. For example, the government has funded more than 20 programs through different agencies for the purposes of R&D, hiring, business development, fundraising, and overseas expansion purposes, etc.,20 so these funding activities undertaken by the government could impact the fintech landscape in multiple areas, including government support, business environment, and talent

The four types of activities that are instrumental to determining the healthiness of the fintech ecosystem are regulation, government support, business environment, and talent. Fintech participants interact with each other to allow different activities to take place. More collaboration and communication between different participants (i.e., the more overlap between the four factors) reflect a dynamic and mature ecosystem. The fifth type of activity is research and development – particularly applied research, which is a backbone to the innovation process in fintech.

GovernmentSupportTalent

EnvironmentBusinessRegulation

[

Exhibit 6 ] : Four Major Types of Fintech Activities

5. Formulate recommendations for Hong Kong to become a leading global fintech hub forrecommendationsStrategicHongKongKey areas that reflect a fintech competitivenesshub’s Regulation

discussionIn-depth with key stakeholders eg. andrepresentativesindustryregulators

4. Analyze Hong Kong’s current fintech ecosystem to identify its competitive advantage and any opportunities in the local and global environments for Hong Kong’s fintech ecosystem to grow;

As global and local conditions are constantly changing, new initiatives and developments are required in the fast-growing fintech industry. From 2020 to 2021, we conducted extensive desk research and met with key stakeholders including industry representatives and regulators of the Hong Kong fintech ecosystem to collect opinions and insights to identify key areas where Hong Kong should focus to become a successful global fintech Byhub.examining the range of activities in other international hubs, we collected useful references to assist Hong Kong in designing its own strategic plan to become one of the strongest global fintech hubs. Our main purpose is not to compare the other fintech hubs’ performances with Hong Kong, but to gain a better understanding of how Hong Kong might learn from the different approaches and experiences of other fintech hubs. Therefore, our focus will be on specific policies or activities of the selected hubs. We highlight any notable action or non-action that has contributed to success or failure in certain areas. While we have categorized the hubs’ actions into four areas, it is important to note the areas are highly interrelated and further comprehensive analysis is recommended. Methodology Through our desk research and rounds of discussions with industry representatives and regulators, we used a systematic approach to:

Study Background ResearchDesktopExtensive

EnvironmentGovernmentSupportBusinessTalent [ Exhibit 7 ] : Methodology of the Study

1. Identify key areas that have contributed to a fintech hub’s competitive potential;

3. Examine each selected hub’s fintech focus, activities under the four key indicative areas, and where they have had the most success in implementation;

Study Background

2. Select the fintech hubs to be included in this report;

The four major areas we identify that are essential for any city to become a truly global fintech hub are Regulation, Government Support, Business Environment, and Talent Hub Selection

22.

21. The Global financial Centres Index (GFCI) 28 (Z/Yen, China Development Institute and Long Finance. | The Global Financial Centres Index 28 (Sep 2020). | https://www.longfinance.net/media/documents/GFCI_28_Full_ Report_2020.09.25_v1.1.pdf) was adopted as it was the latest available GFCI at the time we conducted the hubs selection process. The Institute for Financial Services Zug (IFZ). | 2018 IFZ Global FinTech Rankings. | https://innovation. thomsonreuters.com/en/labs/portfolio/global-fintech-rankings.html#/ Findexable Limited. | The Global Fintech Index 2020. | https://findexable.com/wp-content/uploads/2019/12/ Findexable_Global-Fintech-Rankings-2020exSFA.pdf Startup Genome. | Global Fintech Ecosystem Report 2020. | https://startupgenome.com/report/global-fintechecosystem-report-2020

23.

For policymakers and fintech practitioners who are highly familiar with the Hong Kong fintech landscape, you may fast-forward directly to Part II for the recommendations.

Focusing on the world’s top 10 financial centers, 21 we examined several academic and industry research reports on global fintech rankings including the IFZ Global FinTech Rankings , 22 the Findexable: Global Fintech Index , 23 and The Global Fintech Ecosystem Reports 24 We then selected those established fintech hubs that we felt would be the most useful references for Hong Kong based on their respective strengths. After deliberation, we selected these seven fintech hubs: London, New York, San Francisco, Shanghai, Singapore, Tokyo, and Zurich How to Read This Report

24.

For fintech practitioners and enthusiasts, general readers who might not be familiar with the Hong Kong fintech landscape, or those who are interested in learning about the experiences of other fintech hubs, we suggest starting from Part I.

In this report, we provide a snapshot of how the four key areas – Regulation, Government Support, Business Environment, and Talent – are playing out in the seven selected hubs as a way of understanding what is contributing to their current level of success. We also provide a list of recommendations based on the insights from our findings and analyses of the selected hubs’ experiences, and our understanding of Hong Kong’s competitive strengths, limitations, and needs.

Study Background Key Indicative Areas of a Fintech Hub’s Potential

21 PART ExaminationI of Seven Fintech Hubs: London, New York, San Francisco, Shanghai, Singapore, Tokyo, and Zurich

Being an interplay between “finance” and “technology”, the fintech industry encompasses a large range of actors and activities. A fair, transparent, and up-to-date regulatory and licensing framework must be present to address both boosters and barriers to innovation. Regulation, sound policies, licensing regimes and guidelines should be adopted to facilitate the adaptation of the traditional financial sector in the “fintech era”. The government should act as a forerunner of technology by providing a favorable policy environment to the industry with innovation initiatives (e.g., implementation of open Application Programming Interface (API)). To provide a supportive regulatory environment, close connection with industry players and quick responses to market changes are essential. Building collaborative ties between regulators and other jurisdictions to strengthen a fintech hub’s international position is also a necessary task from the public agencies.

* San Francisco was included in the region of Silicon Valley, which was one of the 44 ecosystems rated. : Fintech Regulation Rating of Hong Kong and Selected Fintech Hubs (2017)

federation-innotribe-innovate-finance.pdfdeloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-connecting-global-fintech-hub-https://www2.

22 Part I: Examination of Seven Fintech Hubs Four Key Areas Influencing Fintech Hub Success

[ Exhibit 8 ]

Source:global-fintech-hub-federation-innotribe-innovate-finance.pdfhttps://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Innovation/deloitte-uk-connectingI. REGULATION

Hong Kong

Establishing and Refining Regulatory Frameworks

According to Deloitte’s 2017 report 25 that analyzes 44 key cities in the world’s fintech ecosystems, regulation was one of six key indicators used to determine a city’s fintech performance. Ratings such as “better than average”, “good”, and “excellent” demonstrate the regulatory appropriateness of each fintech hub. London and Singapore were among the top cities leading in fintech regulation. Based on our observations, London and Singapore continue to operate with comparatively more adaptive regulatory frameworks, while the other examined hubs do not seem to have fintech-specific frameworks in place or are catching up with new regulatory initiatives to facilitate their emerging fintech needs.

25. Deloitte. | A tale of 44 cities – Connecting Global Fintech: Interim Hub Review 2017 (Apr 2017). |

London New York San Francisco* Good Excellent Better than average Better than average RatingCity

Better than average Excellent Better than average Good London UK regulators are recognized as one of the key facilitators of London’s position as a global fintech leader. The UK Government was the world’s first to launch a regulatory sandbox, and has been keen to encourage innovation and the use of technology in financial services. The UK divides its overall financial supervisory responsibilities between the Bank of England (BoE), who looks after the relationship between fintech and BoE’s policies and core functions, and the Financial Conduct Authority (FCA), who serves as a conduct supervisor.

The regulators have been responding to fintech development with progressive policies, for example, FCA Innovation26 and the BoE’s FinTech Accelerator.27 However, there is no single regulatory framework to govern fintech in the UK. Instead, the level of regulation on fintech firms depends on the nature, scale and size of the business. Overall, the UK has a comprehensive system of regulation that covers most fintech sectors and evolving fintech activities.

aspx?g=9c1c541b-842f-467f-9e52-ceb0c4a506a6

23 Regulation Shanghai Singapore Tokyo Zurich

A large number of fintech activities such as issuing electronic money, providing payment services, and executing insurance and investment activities require licenses, 28 while 26. FCA Innovation provides supports to the firms which promote innovation through their business model and to en-courage the marketization of innovation financial service. For more details, please visit https://www.fca.org. 27. BoE’s FinTech accelerator aims at collaborating with innovative firms to enhance the roles of bank, firms and markets in the fintech innovation cycle. For more details, please visit https://www.bankofengland.co.uk/-/media/ | Fintech regulation in United Kingdom (2019). | https://www.lexology.com/library/detail.

uk/firms/innovation

boe/files/fintech/fintech-accelerator-faqs 28. Lexology.

Part I: Examination of Seven Fintech Hubs most of the UK’s fintech-related actions are subject to existing acts that regulate them.

31.

32. Monetary Authority of Singapore. | Payment Services Act (Apr 2019). | https://www.mas.gov.sg/regulation/acts/ payment-services-act Deloitte. | Understanding the regulatory requirements of the MAS Payment Services Act (2019). | deloitte.com/content/dam/Deloitte/sg/Documents/financial-services/sg-fsi-payment-services-act-2019-wns.pdfhttps://www2. 34. Monetary Authority of Singapore. Payment Services Act: A Guide to the Essential Aspects of the Payment Services Act 2019 (2019). | 03712F4EEEE907C39BA2C12DE63A545495EE1C2Guidance-and-Licensing/Payment-Service-Providers/Guide-to-the-Payment-Services-Act-2019.pdf?la=en&hash=Bhttps://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations35. KPMG. Pulse of Fintech H2’20 (Feb 2021). | https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/02/pulse-offintech-h2-2020.pdf Monetary Authority of Singapore. | Consultation Paper: Consultation Paper on a New Omnibus Act for the Financial Sector (Jul 2019). | the-new-omnibus-act-for-the-financial-sectorhttps://www.mas.gov.sg/publications/consultations/2020/consultation-paper-on-

36.

33.

For example, the Financial Services and Markets Act 2000 (FSMA) was introduced as a full, accurate and accessible document detailing the roles and responsibilities of the financial services and market industries. In an attempt to help firms understand whether their cryptoasset activities fall under FCA regulation, the FCA published the Guidance on Cryptoassets 29 in 2019. In January 2021, the UK government published a consultation paper on its regulatory approach to cryptoassets and stablecoins.30

In addition, the UK government’s fintech development plan includes recruiting up to 100,000 industry workers, launching 30,000 new positions, and establishing 3,300 new fintech companies by 2030.31 It further refines regulations to help the industry grow and expand. Different actions taken by the UK government so far have been reflected in its efforts to build a regulatory environment that is easy-to-follow and friendly to industry participants.

Previously, Singapore had a complicated regulation framework separated into several acts. In 2019, the MAS introduced a single, clear, and comprehensive Payment Services Act 32 that combines the previous acts and sets up a single regulatory framework for payment services. It has broadened the scope of regulation and established a modular and risk-oriented regulatory structure. This act provides an environment more conducive to innovation in payment services, and also promotes the use of digital payments to create greater efficiency for the market.33, 34 The MAS issued its first two digital banking licenses and another two digital wholesale bank licenses in 2020.35 In July 2020, the MAS issued a consultation paper36 on the new Omnibus Act that included provisions to regulate

Singapore Singapore is also working diligently in building a strong regulatory environment for fintech. The Monetary Authority of Singapore (MAS) acts as the central bank and is the integrated supervisor for the financial industry, including fintech. It provides support through a number of regulatory initiatives, which has included providing application guidelines to clarify how existing rules apply to Initial Coin Offerings (ICOs) and roboadvisory services. In addition, the MAS has introduced the Fintech Fast Track initiatives to expedite fintech patent applications to as fast as six months (compared with the normal two-year processing time).

30. HM Treasury. | UK regulatory approach to cryptoassets and stablecoins: Consultation and call for evidence (Jan 2021). | file/950206/HM_Treasury_Cryptoasset_and_Stablecoin_consultation.pdfhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ HM Treasury, Department for International Trade. | UK fintech: state of the nation (2019). | https://www.gov.uk/ government/publications/uk-fintech-state-of-the-nation

29. Financial Conduct Authority. | Guidance on Crypoassets: Feedback and Final Guidance to CP 19/3 (Jul 2019). | https://www.fca.org.uk/publication/policy/ps19-22.pdf

New York and San Francisco

25 Regulation

virtual asset service providers, and significantly impacted the overall Singapore financial services regulatory framework. The MAS proposed to: (1) regulate entities created in Singapore, but carrying on a business of virtual asset activities overseas; and (2) impose licensing, business conduct, and anti-money laundering and counter terrorism financing requirements on such entities.

San Francisco, being another top fintech hub in the US, faces the same problem. To tackle this issue, there is a team of fintech analysts in the Federal Reserve Bank of San Francisco to provide regulation consultation services to fintech companies and banks. In early 2020, California made new plans to revamp the California Department of Business Oversight (DBO) into a direct regulator of fintech companies and providers of related services such as debt collectors and credit reporting agencies.41 DBO was renamed the Department of Financial Protection and Innovation (DFPI) in September 2020 and San Francisco was one of four locations of the DFPI regional offices.

38. Singapore Fintech Association. | Singapore fintech landscape 2020 and beyond (2020, p.14). | and-beyond.pdfoliverwyman.com/content/dam/oliver-wyman/v2/publications/2020/dec/singapore-fintech-landscape-2020-https://www.

37. Singapore Fintech Association. | Singapore fintech landscape 2020 and beyond (2020). | and-beyond.pdfoliverwyman.com/content/dam/oliver-wyman/v2/publications/2020/dec/singapore-fintech-landscape-2020-https://www.

39. PYMNTS. | States press regulators to simplify finTech licensing (Feb 2018). | https://www.pymnts.com/bankregulation/2018/fintech-banking-license-application-occ/

40. US Federal Reserve. | Consumer compliance outlook: Third issue 2016. (2016). | consumercomplianceoutlook.org/2016/third-issue/laws-regulations-and-supervisory-guidance/https://

Singapore’s current approach to fintech regulation is welcome by the industry. A recent survey 37 shows Singapore fintech companies overall approve of the government’s regulatory approach, with 86% of respondents agreeing that the Singapore government performs well in its regulatory framework, and 54% agreeing its regulatory attitudes towards fintech activities has significantly improved in the past two years.38

In contrast with the UK’s and Singapore’s approaches to a centralized, country-level regulatory framework, the US has no federal or state-level fintech-specific regulatory frameworks. Before the Office of the Comptroller of the Currency (OCC) started issuing licenses to fintech companies around 2017, the firms would have to apply for a separate license in each state they operated.39 Depending on the activities of a fintech company, businesses are subject to laws and regulations at both the federal and state levels. For example, financial institutions operating in New York would need to comply with both the Department of Financial Services (DFS), which is responsible for the financial ecosystem at the state level, and the OCC, which manages national banks, federal savings associations, and federal branches and agencies of foreign banks at the federal level. The Federal Reserve recognizes the challenging nature of compliance by fintech companies in such a complex regulatory system, and so they have provided a list of existing laws, regulations, and supervisory guidance relevant to fintech firms and their depository partners,40 which is merely a starting point for businesses to understand a regulatory environment with such an intricate nature.

41. Legislative Analysts’ Office, The California Legislature’s Nonpartisan Fiscal and Policy Advisor. | Reinventing the Department of Business Oversight (Feb 2020). | https://lao.ca.gov/Publications/Report/4181

While different states have their own fintech regulations and policies, the US seems to have started some strategic plans at the federal level. The DFS FastForward,42 aiming to encourage fintech innovation for the post-COVID-19 economic recovery, was launched in June 2020 to reduce barriers and speed up the regulatory process for innovators.

44.

46.

The pilot program Project Whitehall43 was also established in the same year to assist insurtech innovators with regulatory questions. In 2019 and 2020, the US House of Representatives introduced multiple bills related to digital assets, including the Securities Clarity Act and the Digital Commodity Exchange Act. However, it is not uncommon to see state regulators challenge the practices used at the federal level in hopes of keeping state control.

42. New York State, Department of Financial Services. | Fast Forward (2021). | https://www.dfs.ny.gov/industry_ guidance/dfs_next/dfs_fastforward New York State, Department of Financial Services: | Program to drive innovation financial services and products for new yorkers in the covid-19 era (Jun, 2020). | https://www.dfs.ny.gov/reports_and_publications/press_ releases/pr202006091 Reuters. | Leader of China's $9 billion Ezubao online scam gets life; 26 jailed (Sep 2017). | https://www.reuters. com/article/us-china-fraud-idUSKCN1BN0J6 China Banking and Insurance Regulatory Commission. | CBIRC Solicits Public Opinions on the Rules on the License Management of Banking and Insurance Institutions (Jan 2021). | https://www.cbirc.gov.cn/en/view/ pages/ItemDetail.html?docId=963439 China Banking News. | Shanghai officially launches work on fintech sandbox trial (May 2020). | chinabankingnews.com/2020/05/19/shanghai-officially-launches-work-on-fintech-sandbox-trial/https://www.

43.

Shanghai China is undergoing a transition in its regulatory approach for fintech. The country has been moving from its initially relaxed approach in fintech to a more pronounced regulatory approach for healthy market development and better risk management to combat fraud and problematic standards since the mid-2010’s. The Ezubo 44 case and the financial vulnerability found in other Peer-to-Peer (P2P) financing platforms prompted a number of regulatory initiatives proposed by the Chinese government to strengthen fintech sector regulation. The work on high-level rules specifically addressing the regulatory framework and principles in fintech began with 2015’s Guiding Opinions on Promoting the Sound Development of Internet Finance jointly published by the People’s Bank of China (PBOC) and nine other authorities. Since then, China has been stepping up its regulation on fintech. In 2019, the PBOC issued the Notice by the People’s Bank of China of Issuing the FinTech Development Plan (2019-2021), a three-year development plan to improve the top-down design of the fintech industry and strengthen risk controls, including an early warning regime on cross-market and cross-industry financial risks. In January 2021, the China Banking and Insurance Regulatory Commission drafted the Rules on the License Management of Banking and Insurance Institutions45 for public consultations to standardize management rules of banking and insurance licenses, and to clarify relevant Followingrequirements.national-level regulatory principles, Shanghai – as one of China’s leading cities in fintech – also stepped up with its corresponding actions in fintech regulation. In May 2020, the PBOC Shanghai branch announced the launch of the Shanghai Fintech Innovation Regulatory Trial46 for the city to become China's innovation application hub and technological research hub for fintech.

45.

Part I: Examination of Seven Fintech Hubs

Regulation Tokyo Japan has a comparatively loose regulatory approach towards fintech services. The Japan Financial Services Agency (JFSA) serves as a centralized regulator for all fintech issues. However, the country does not have a specific regulatory framework for fintech businesses and adopts liberal restrictions on banks’ investments in fintech. It focuses acutely on cryptocurrency exchange services and electronic payment intermediate services, and has been pushing for fintech innovation through the establishment of several laws relating to blockchain, cryptocurrencies, and APIs. Two important laws, the Banking Act and the Settlement Act,47 were amended in 2016 to regulate virtual currency exchanges and to relax banks’ investments in fintech firms.

Zurich Zurich, the largest financial center in Switzerland, does not have any regimes that specifically address fintech regulation. The Financial Market Supervisory Authority (FINMA) is the integrated authority responsible for the regulation of financial services in Switzerland. While general Swiss laws and regulations are applied in the financial sector, there are no specific prohibitions that target fintech businesses or cryptocurrencyrelated activities. Two new financial market laws, the Swiss Financial Services Act and the Financial Institutions Act came into effect on 1 January 2020.49 The former aims to reflect similar principles implemented at the EU level, and the latter introduces new measures for standardizing the licensing requirements for financial institutions. Together, the new laws are intended to enhance the financial market architecture and improve customer protection in financial services.

Common Strategies for Regulatory Environments

While there is no single regulatory success recipe that works for all fintech hubs, we have identified these three common strategies across the examined hubs:

47. KPMG. | Update on fintech development in Japan (Jun 2016). | https://assets.kpmg/content/dam/kpmg/ pdf/2016/06/jp-fintech-news-letter-201606.pdf

1. Moving towards a single, fintech-focused regulatory framework at the national level; 2. Integrating and adapting existing legislations that govern fintech activities; and 3. Consolidating functions of supervisory agencies to minimize the points of contact for industry stakeholders. We observe that regulators are still adjusting their institutional arrangements to adapt to constantly evolving fintech challenges and the innovation process.

In November 2017, the Tokyo Metropolitan Government (TMG) announced its plans to make Tokyo an unrivaled global financial center in the publication “Global Financial City: Tokyo” Vision.48 One of the key initiatives is the establishment of accelerator programs. For example, leading companies in Japan’s financial sector will be matched with suitable foreign business companies and mentor foreign fintech startups.

48. Tokyo Metropolitan Government. | “Global Financial City: Tokyo” Vision: Toward the Tokyo Financial Big Bang (Nov 2017). | https://www.seisakukikaku.metro.tokyo.lg.jp/en/pgs/2021/03/images/02-2_vision-en.pdf

Switzerland has opted for a technology-neutral and principle-based approach in its legislation, which engages market-led technological innovation. Depending on the specific business models of individual fintech firms, business activities could be regulated by the Banking Act, the Anti-Money Laundering Act, the Collective Investment Schemes Act, and the Financial Institutions Act, and comply with other regulatory requirements and ongoing compliance and reporting obligations.

49. IFLR. | New Swiss financial market rules: a guide (Sept 2020). | https://www.iflr.com/article/b1nf2fss3z7rk1/newswiss-financial-market-rules-a-guide

MAS Tokyo Japan No · Relaxed regulatory approach; focus on cryptocurrency and digital payment market development with national-level development plan to be implemented by the Tokyo Metropolitan Government (TMG)

Selected Hubs

Zurich Switzerland No · Adopts a technology-neutral and principle-based approach

BoE and FCA

[ Exhibit 9 ] : Overview of Fintech Regulatory Environments of

JFSA

· Established a national and comprehensive sustainable finance development plan

New York US No · Multiple frameworks at both federal and state levels Federal Reserve, OCC, SEC, CFTC, and CFPB

· Started to establish top-down fintechspecific strategic roadmap and longterm development plans in recent years

FINMA

Singapore Singapore Yes · Top-down fintech-specific framework with national level and long-term development plan

28 Part I: Examination of Seven Fintech Hubs Hub Country frameworkFintech-specific Characteristics of current regulatory approach Main regulatory body

London UK Yes · No single regulatory framework to govern fintech activities, but depends on the nature, scale, and business size of financial institutions and fintech companies Fintech-specific strategy roadmap with a long-term national development plan

PBOC

Note:

BoE = Bank of England; FCA = Financial Conduct Authority; OCC = Office of the Comptroller of the Currency; SEC = Securities and Exchange Commission; CFTC = Commodity Futures Trading Commission; CFPB = Consumer Financial Protection Bureau; PBOC = People’s Bank of China; MAS = Monetary Authority of Singapore; JFSA = Japan Financial Services Agency; FINMA = Swiss Financial Market Supervisory Authority the

San Francisco US No · Multiple frameworks at both federal and state levels Federal Reserve, OCC, SEC, CFTC, and CFPB

Shanghai China No · Transitioning from loose to pronounced regulations

56. The Business Times. | Singapore, Shanghai to boost collaboration in financial services, innovation (Dec 2020). | financial-services-innovation-0https://www.businesstimes.com.sg/government-economy/singapore-shanghai-to-boost-collaboration-in-

It is important for countries to participate in international organizations and foster good relations with other countries to encourage cooperation and strengthen their ability to mutually address global challenges. Establishing good ties with other countries can also create additional opportunities for local economies and businesses. Some of the examined fintech hubs have shown a strong presence in fostering international

RegulationWorking with Regulators

· Singapore is also a member of GFIN, and has membership in the ASEAN Financial Innovation Network, along with the International Finance Corporation (IFC), World Bank Group and the ASEAN Bankers Association (ABA), for facilitating digital transformation of the banking and finance sectors across the ASEAN region. 54 As of March 2021, Singapore has signed 34 fintech cooperation agreements with governments worldwide, including China, Hong Kong, Japan, the UK, and the US.55

51. Financial Stability Board (FSB). | Crypto-assets: Work underway, regulatory approaches and potential gaps (May 2019). | https://www.fsb.org/wp-content/uploads/P310519.pdf

State Department of Financial Services (NYDFS) currently has cooperation agreements with Israel, Japan, Thailand, the UK, and France on crossborder fintech development. NYDFS is a member of the Global Financial Innovation Network (GFIN),53 which was launched in 2019 and organized by an international group of financial regulators and related organizations in the UK to facilitate cooperation among worldwide financial regulators.

54. ASEAN Financial Innovation Network. https://www.whub.io/startups/asean-financial-innovation-network

Worldwide Inter-governmental finance and economics organizations such as the Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS) have issued guidance for national authorities who regulate and supervise fintech-related activities. Some examples of how the global regulatory community work together to identify best regulatory practices are: (1) the discussion on policy and supervisory initiatives by the Basel Committee on Banking Supervision (BCBS);50 (2) the paper, Crypto-assets: Work underway, regulatory approaches and potential gaps by FSB; 51 and the paper, Policy responses to fintech: A cross-country overview (a review of published regulations in 31 different jurisdictions)52 by the Bank for International Settlements (BIS).

· A number of agreements were signed at the second Singapore-Shanghai Comprehensive Cooperation Council (SSCCC) meeting 56 in 2020 that broaden the cross-border cooperation between the two fintech hubs. Up to ten MOUs were signed, including the DBS Bank – Shanghai Pudong Development Bank MOU to expand their existing financial technology and applications partnership, and the UOB – Shenergy Group MOU to drive the adoption of green energy products and services. A month prior to the

50. Bank for International Settlements (BIS). | Basel Committee discusses policy and supervisory initiatives and approves implementation reports (Oct 2019). | https://www.bis.org/press/p191031.htm

53. The Global Financial Innovation Network (GFIN). https://www.thegfin.com/

55. Monetary Authority of Singapore. | FinTech Cooperation Agreements (2021). | https://www.mas.gov.sg/ development/fintech/fintech-cooperation-agreements

·collaboration:TheNewYork

52. Bank for International Settlements (BIS). | Financial Stability Institute Insights on policy implementation No 23: Policy responses to fintech: a cross-country overview (Jan 2020). | https://www.bis.org/fsi/publ/insights23.pdf

58. Department for International Trade, The United Kingdom. | Building fintech bridges (Jan 2020). | great.gov.uk/international/content/about-uk/industries/financial-services/building-fintech-bridges/https://www.

59. The Sydney Morning Herald. | Government plans fintech push to boost export sector (Nov 2019). | p53dix.htmlsmh.com.au/business/small-business/government-plans-fintech-push-to-boost-export-sector-20191124-https://www.

60. FinTech Futures. | Fintech and the role of government (May 2017). | https://www.fintechfutures.com/2017/05/ fintech-and-the-role-of-government/

· The UK signed the first Fintech Bridge agreement with Singapore in 2016, followed by similar agreements made with Australia, China, Hong Kong, and South Korea.58 However, with the exception of the Singapore fintech bridge that has sent fintech entrepreneurs to London, the other bridges have been deemed ineffective for being under-utilized.

Fintech companies in the US have expressed their needs60 for government collaboration to achieve the following: (1) ensure fintech solutions meet safety and soundness criteria; (2) ensure legal and regulatory frameworks are “digital-ready”; (3) reduce administrative obstacles and regulatory complexity; (4) endorse adoption of efficient digitization

The efforts of regulators worldwide to upscale their fintech ecosystems from local to regional to international levels are obvious, but the question about the degree of actual effectiveness remains. Similar to their regulatory frameworks, the fintech hubs are still experimenting with different approaches. Time will reveal which types of inter-regulatory collaboration results in the most benefit. We expect each government to continue putting resources into enhancing their fintech capabilities and strong efforts into becoming one of the top performers on the global fintech stage.

Before governments adjust their regulatory system, they need to engage with the stakeholders to get feedback on how to best design policies and programs that effectively address the challenges and opportunities in fintech. Active engagement with stakeholders can be through institutional feedback mechanisms (e.g., public consultations, industry surveys) or ad-hoc opportunities (e.g., industry events, business meetings). It is important for regulators to not only regulate, but to also address industry needs to achieve a healthy environment for mutual understanding and growth.

· Switzerland is keen to expand its fintech ecosystem into Asia and forge closer ties with countries including Singapore and China through collaborations, co-innovation, and deal making. F10, a Zurich and Singapore-based startup hub, has been creating multiple opportunities for Switzerland to strengthen ties with the Asian markets. In late 2019, an MOU was established between F10 and Zheshang Venture Capital57 to help attract Chinese investments into the Swiss fintech ecosystem and create opportunities for Chinese venture capital companies to cooperate with Swiss multinational companies in Zurich. F10 began offering its prototype-to-product program in Singapore in May 2020, while the FINMA and the MAS had already signed a cooperation agreement for fintech cooperation between the two countries in 2016. Additionally, FINMA has established bilateral agreements with different authorities worldwide including Hong Kong, Japan, and Singapore to promote Swiss fintech at a global level.

Regulatory Response and Innovation Initiatives

57. Fintech Switzerland. | Collaboration between the Swiss and Chinese fintech ecosystems (Dec 2019). | https:// fintechnews.ch/fintech/collaboration-between-the-swiss-and-chinese-fintech-ecosystems/32009/

Part I: Examination of Seven Fintech Hubs SSCCC meeting, the Shanghai Fintech Industry Alliance (SFIA) and Singapore Fintech Association (SFA) signed an agreement for talent exchange and joint collaborations to nurture the growth of fintech firms.

From our research across the selected hubs, we would expect regulators to engage with fintech stakeholders and respond to industry needs more before they formulate regulatory policies. We note that regulators have shown resilience and responsiveness to ongoing challenges, including the COVID-19 pandemic that has heavily impacted fintech worldwide. Fintech hubs such as Singapore, New York and the UK have all provided support packages specific to the fintech sector with a variety of responses such as retraining programs and financial assistance. For example, the Singapore government created a support package 63 of S$125mn (US$94mn) that includes the setup of the Training Allowance Grant and the Digital Acceleration Grant to help fintech companies with workforce training, digitalization and operation resilience as well as gain access to digital platforms and tools. 64 The UK government focused on providing financial assistance to high-growth start-ups, and announced a £1.25bn (US$1.65bn) coronavirus package to protect start-ups that are driving innovation. The package also included a £500mn (US$662bn) Future Fund, which is a loan scheme for high-growth businesses including fintech.65 At the same time, New York had a headstart and launched the DFS FastForward to encourage fintech innovation in the post-pandemic economic recovery.66 Other financial centers such as Shanghai, Tokyo, San Francisco and Zurich provided support packages for a wider range of industries, which included fintech.

67. American Fintech Council (AFC).| The Leading Voice in Fintech, Adds 10 New Members, Diversifying Fintech Industry Participation; Introduces the formation of a community advisory board consisting of leading consumer groups, CDFI's and academic leaders to help further promote responsible innovation and dialogue (Mar 2021).

66. Department of Financial Services. | Superintendent Lacewell Announced the Launch of New DFS Program to Drive Innovative Financial Services and Products for New Yorkers in the COVID-19 Era (Jun 2020).

10-new-members-diversifying-fintech-industry-participation-301242110.htmlhttps://www.prnewswire.com/news-releases/american-fintech-council-afc-the-leading-voice-in-fintech-adds-| solutions; and (5) offer coordinated government identity protocols. The need for regulator-industry collaboration echoes our observation in our previous study on fintech talent development61 in Hong Kong where a strong consensus was found for an adaptive regulatory framework and more frequent engagement with regulators. According to a survey of UK fintech founders conducted by Digital Finance Forum in August 2020, twothirds of the 100 surveyed felt their input was not being properly responded to and not being reflected in UK policy and regulatory circles.62

67 Singapore’s government has invited key fintech innovators and

31 Regulation 61. HKUST Business School - Fintech Research Project. | The Fintech Talent Development, Competency, and Manpower Study (2020). | Development-Competency-and-Manpower-Study_v6/http://www.bm.usthk.cn/files/Content/FlippingBook/Report/The-Fintech-Talent62. Digital Finance Forum. | Findings of the Digital Finance Forum Summer Survey of Fintech Founders (Aug 2020) | de/1596191721812/DFF+-+Summer+Survey+2020.pdfhttps://static1.squarespace.com/static/5c45e807f7939273c6da571d/t/5f23f3e085a31508c7eb5a 63. Monetary Authority of Singapore. | MAS Launched S$125 Million Package for Financial Institutions and FinTech Firms to Strengthen Long-Term Capabilities (Apr 2020). | mas-launches-package-for-fis-and-fintech-firms-to-strengthen-long-term-capabilitieshttps://www.mas.gov.sg/news/media-releases/2020/ 64. Monetary Authority of Singapore. | MAS Launched S$125 Million Package for Financial Institutions and FinTech Firms to Strengthen Long-Term Capabilities (Apr 2020). | mas-launches-package-for-fis-and-fintech-firms-to-strengthen-long-term-capabilitieshttps://www.mas.gov.sg/news/media-releases/2020/

65. GOV.UK. | Billion pound support package for innovative firms hit by coronavirus (Apr 2020). | https://www.gov.uk/ government/news/billion-pound-support-package-for-innovative-firms-hit-by-coronavirus

The number and variety of regulatory initiatives implemented over recent years indicates regulators’ determination to strengthen collaboration with the industry. In March 2021, the American Fintech Council (AFC) expanded its membership to broaden its representation and diversity as “the leading unified voice of the fintech industry” for creating new practice standards and promoting policies” that advance responsible innovation and inclusivity within financial services”.

[ Exhibit 10 ] : Examples of Regulatory

of the Selected Hubs

· In 2020, the California Department of Business Oversight (DBO) was renamed and revamped to the Department of Financial Protection and Innovation (DFPI), with new and expanded responsibilities in regulations, licensing and innovation with a view to foster financial service and fintech development

New York

· In 2020, Project Whitehall was established to assist insurtech innovators seeking regulatory guidance and support

London · First global financial center to pioneer both a regulatory sandbox and open banking

32 Part I: Examination of Seven Fintech Hubs City Regulatory Innovation Initiatives

San Francisco

· First G7 nation to publish the DLT and Cryptoassets Guidance on outsourcing to the cloud

· Developed new regulation regime by introducing the Securities Clarity Act in 2019, to regulate digital assets and other emerging technologies

business leaders from major financial firms to form the International Technology Advisory Panel (ITAP) to advise Singapore on how to enhance the country’s fintech services. One key issue is how public agencies and regulatory regimes can help build public confidence and trust towards fintech products and services.

· In 2020, the Digital Commodity Exchange Act was published to fill in the regulatory gaps between the two main market regulators – the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), in order to protect the investors

· In 2020, the PBOC Shanghai branch announced the launch of the Shanghai Fintech Innovation Regulatory Trial for the city to become China’s hub for both innovation applications and technology research for fintech by 2030; Kicked off its first Fintech Sandbox Trial in Shanghai, with eight trial projects covering fintech solutions such as smart investment advisory services, blockchain-based small and micro business financing services, and digital financial risk control projects

· 28 organizations participated in the Digital Sandbox Pilot program, which was launched to help the financial industry during the COVID-19 pandemic; the program provides financial innovators with tools to collaborate and develop financial services

· DFS FastForward was launched in 2020 to encourage fintech innovation for the post-COVID-19 economic recovery

68. Monetary Authority of Singapore. | International Technology Advisory Panel. | are/MAS-Advisory-Panels-and-Committees/international-technology-advisory-panelhttps://www.mas.gov.sg/who-we69. Monetary Authority of Singapore. | MAS sets up International Technology Advisory Panel (Aug 2016). | https:// www.mas.gov.sg/news/media-releases/2016/mas-sets-up-international-technology-advisory-panel Innovation Initiatives

Shanghai · The People’s Bank of China issued the FinTech Development Plan (2019-2021), a three-year development plan to improve the topdown design of the fintech industry

· The SFC published the Fintech License in 2019, with a new licensing category with a streamlined reporting process to serve the needs of fintech business models Innovation Initiatives of the Selected Hubs

The TMG has been issuing Tokyo Green Bonds since 2017 to position Tokyo as a smart energy city Issued Guidance to the Asset Management Industry in Japan in English, to provide a clear explanation of Japanese financial regulations and registration procedures for foreign financial institutions and fintech companies

RegulationCity Regulatory Innovation Initiatives

· Issued the first two digital banking licenses and another two digital wholesale bank licenses in 2020

· Announced a S$125mn (US$94mn) COVID-19 Support Package for financial institutions and fintech companies for recovery, training and future growth

Singapore · Introduced a single, clear, and comprehensive Payment Services Act in 2019

Zurich

· The Swiss Financial Services Act (FinSA) and the Financial Institutions Act (FinIA) were published in 2020, to govern the provision of financial services, offer financial instruments and strengthen investor protection, as well as to introduce new measures for standardizing licensing requirements for financial institutions

(Cont.) [ Exhibit 10 ] : Examples of Regulatory

Tokyo To deepen and foster digital currency development, two important laws, the Banking Act and the Settlement Act, were amended in 2016 to regulate virtual currency exchanges and to relax banks’ investments in fintech firms

· In 2017, the Swiss Federal Council (SFC) launched a fintech-specific regulatory sandbox that allowed companies to accept public deposits of up to CHF$1mn (US$1.1mn) without the need to apply for a banking or fintech license

Provides incentives such as the government’s Tokyo Financial Awards, which gives recognition to innovative financial companies and adopts an ESG approach

Provided funding support to the Tokyo ESG Fund in 2020, to promote ESG investment in Japan

· Enhanced Singapore fintech companies’ access to digital platforms and tools by offering six months’ free access to global online sandboxes and API Exchange (APIX)

· Developed a centralized national digital identity scheme – Singapore Personal Access (SingPass) – that allows users to access more than 60 government agencies with one password, now more than 3.3 million registered users

Although Hong Kong does not have an overarching fintech-specific regulatory framework, fintech business operations are subject to existing financial laws and regulations. Financial activities in Hong Kong are highly regulated. Most fintech-related businesses are licensed by the Securities and Futures Commission (SFC) under the Securities and Futures Ordinance (SFO). Fintech organizations that belong to specific industries such as banking and insurance are governed by the Hong Kong Monetary Authority (HKMA) and the Insurance Authority (IA) respectively. Hong Kong has a regulatory regime that follows international practice.70 Although without a fintechspecific regulatory framework, it uses a supportive supervisory approach to keep innovation abreast.71 Over the years the regulators have been proactive and responsive with the implementations of various regulatory initiatives to support the needs arising from the ever-changing fintech environment.

Regulators in Hong Kong generally adopt a risk-focused, technology-neutral and disclosure-based-approach. The risk-focused and technology-neutral nature helps to avoid premature regulation hindering innovation, while at the same time enables greater business flexibility to fintech products and solutions without posing significant risks to the financial system. A disclosure-based regime ensures customers are protected: fintech companies are required to disclose accurate and reliable information to help people make informed decisions before selecting financial products and Hongservices.72Kong’s financial regulators are also proactive in establishing fintech collaborations with both its national and international counterparts, which is vital to sustain Hong Kong’s position as a global financial center. The city plays an important role as a bridge between Mainland China and the rest of world. It benefits from a close relationship and proximity with Mainland China, and is also renowned for its highly developed financial ecosystem, renowned professional services, as well as being an important trade center and aviation hub to the world. On the international front, Hong Kong works with regulators around the world to maintain its high standards as a financial city, and be at the forefront of finance and technology innovations.

34 Part I: Examination of Seven Fintech Hubs Hong Kong as a Global Fintech Hub: Regulation

| selected-places-20190528-e.pdfhttps://www.legco.gov.hk/research-publications/english/1819in14-regulation-of-financial-technology-in-

HONG KONG

Regulation Insufficient Sufficient

71. Research Office, Legistaive Council Secretariat. | Regulation of financial technolog in selected places (May 2019).

| selected-places-20190528-e.pdfhttps://www.legco.gov.hk/research-publications/english/1819in14-regulation-of-financial-technology-in-

70. Research Office, Legistaive Council Secretariat. | Regulation of financial technolog in selected places (May 2019).

72. Regarding disclose-based regulatory regime, for more details, please visit Mayer Brown. | Hong Kong's Disclosure Based Regulatory Regime Takes Further Shape (Feb 2009). | perspectives-events/publications/2009/02/hong-kongs-disclosure-based-regulatory-regime-takehttps://www.mayerbrown.com/en/

35 Government Support

II. SUPPORTGOVERNMENT

The fintech sector has gained considerable traction in recent years with public support and investment, and its global growth continues despite COVID-19. 73 The industry will need even more support as it sets new priorities for the post-pandemic world. Aside from regulatory policies, the government can facilitate the development of the fintech industry by: (1) providing financial support through public funding; (2) organizing programs that encourage innovation and entrepreneurship in the industry; and (3) providing opportunities that give the fintech industry access to experts’ advice, the latest information, and public services. Public Funding Approach Innovation is the backbone of fintech, and funding is vital for promoting and realizing innovation, especially in the earlier stages.74 Fintech-specific financial support is usually a combination of public and private funding, but with more reliance on private funding to varying degrees. For Switzerland, public funding is minimal, as most of the financial support for fintech is from private associations, and is primarily financed by major financial institutions. In contrast, Singapore is at the other end of the scale with its government dedicating vast resources to drive fintech development.

73. Around 1,400 fintech firms from 169 countries reported a year-on-year increase in transaction numbers and volumes of 13% and 11% respectively in the first two quarters of 2020. For more details, please visit CCAF, World Bank and World Economic Forum (2020), The Global Covid-19 FinTech Market Rapid Assessment Report, University of Cambridge, World Bank Group and the World Economic Forum. ac.uk/wp-content/uploads/2021/03/2020-ccaf-global-covid-fintech-market-rapid-assessment-study-v2.pdfhttps://www.jbs.cam.

The diversity of fintech clusters and activities supported by the Singapore government reflects its strong commitment to national fintech development. It provides different subsidies targeted at different types of fintech. For example, the Cybersecurity Capability Grant provides up to a S$3mn (US$2.2mn) subsidy per cybersecurity project;75 the Digital Acceleration Grant offers up to S$120,000 (US$89,651) per entity to support smaller scale financial institutions and fintech companies in adopting technology solutions;76 and the AI and Data Analytics Grant provides funding capped at S$1.5mn (US$1.1mn) for unique AI use cases.77 To foster an ecosystem in innovation, the MAS allocated another S$250mn (US$187mn) in special funds under its Financial Sector Technology and Innovation (FSTI) 2.0 Scheme to be valid until March 2023, which is on top of the S$225mn (US$168mn) from the FSTI 1.0 scheme that was introduced in 2015.78

78. Monetary Authority of Singapore. Financial Sector Technology and Innovation (FSTI) 2.0 (Aug 2020). https:// www.mas.gov.sg/-/media/MAS/News/Media-Releases/2020/MAS-Infographic_-Enhanced-FSTI.pdf

The role of MAS as a central coordinator is helpful for fintech companies to access information on public funding opportunities. It also allows Singapore to more effectively organize specific schemes for the fintech industry.

76. Monetary Authority of Singapore. Digital Acceleration Grant - Financial Institutions and FinTech Firms. https:// www.mas.gov.sg/development/fintech/digital-acceleration-grant

77. Monetary Authority of Singapore. Artificial Intelligence and Data Analytics Grant (Jan 2019). https://www.mas. gov.sg/schemes-and-initiatives/Artificial-Intelligence-and-Data-Analytics-AIDA-Grant

74. Normally innovators would have financial challenge at the earliest or earlier stages of innovation. At the same time, external financing will not be easily available for the innovators as the private investors will not invest until the innovation has been reaching a commercially viable level. As a result, public financing from governments would alleviate seed financial issues at the early stage of innovation. For more details, please visit United Nations Conference on Trade and Development. Investing in innovation for development (Feb 2013). https:// unctad.org/system/files/official-document/ciid21_en.pdf

75. Monetary Authority of Singapore. Cybersecurity Capability Grant (Sept 2018). https://www.mas.gov.sg/ schemes-and-initiatives/fsti-cybersecurity-capability-grant

Sandbox Environments

Federal Judge Rules New York’s “Win” Against OCC’s Fintech Charter Nullifies The Fintech Charter Concept Entirely (Oct 2019). | Crowdfundfintech-charter-should-cancel-the-fintech-charter-concept-entirely/https://debanked.com/2019/10/federal-judge-rules-new-yorks-win-against-occs-Insider.|

83.

The presence of sandbox programs provides a safe environment for conducting pilot trials that are essential for getting innovative ideas to the commercialization stage. It is a win-win for governments, regulatory bodies, and sandbox participants. For fintech companies, the regulatory sandbox is a safe, reliable, and minimal cost testing space for their new products and services. For regulators, they can observe whether the relevant regulations would drive or hinder the development of innovation, and help the regulatory regimes make an “evidence-based policy decision”.80 According to the World Bank, there are a total of 73 regulatory sandboxes across 57 jurisdictions as of November 2020.81 Since 2016, over 70 fintech-related sandboxes have been created globally. The majority of sandboxes were established in the Asia-Pacific region, followed by Europe, with the US reporting the fewest sandboxes.82 The GFIN has piloted a six-month cross-border testing program in February 2019 for firms to test their products, services or business models across multiple jurisdictions.83

81. The World Bank. | Key Data from Regulatory Sandboxes across the Globe (Nov 2020). | https://www.worldbank. org/en/topic/fintech/brief/key-data-from-regulatory-sandboxes-across-the-globe World Bank Group. | Global Experiences from Regulatory Sandboxes (2020). | pdf?sequence=1&isAllowed=yworldbank.org/bitstream/handle/10986/34789/Global-Experiences-from-Regulatory-Sandboxes.https://openknowledge. Global Financial Innovation Network (GFIN). | The GFIN Cross-Border Testing. | https://www.thegfin.com/ crossborder-testing According to the FCA website last updated on January 2020, the application window for cohort 7 of the regulatory sandbox closed on December 2020 and will open again in 2021.

82.

Except using public funding as a direct financial approach to support fintech activities, the governments also consider non-financial efforts to assist and sustain the potential development of fintech innovation. We will not discuss some common forms of nonfinancial government support that are considered important and effective tools.

Meanwhile, New York and San Francisco have had the opposite experience because of the layered political regulatory structure in the US. Having different regulatory frameworks at federal and state levels makes it more difficult to pass bills. For example, in 2018, the DFS turned down OCC’s support for fintech sandboxes as well as OCC’s special purpose national bank charter for fintech companies.79 The struggle between federal- and statecontrolled regulations will continue to present difficulties to fintech companies in the US if this remains unresolved.

36 Part I: Examination of Seven Fintech Hubs

The UK was the first country to adopt a fintech regulatory sandbox in late 2015, and has conducted the sandbox for seven cohorts84 to date. In addition to the benefits already 79. Fintech Future. | New York state stands against fintech sandboxes (Feb 2018). | https://www.fintechfutures. Debanked.com/2018/08/new-york-state-stands-against-fintech-sandboxes/|

Final Judgement: OCC Loses Fintech Charter Legal Battle as Judge Rules in Favor of New York State Department of Financial Services (Oct 2019). | Rollfinancial-services/final-judgement-occ-loses-fintech-charter-legal-battle-as-judge-rules-in-favor-of-new-york-state-department-of-https://www.crowdfundinsider.com/2019/10/153207-Call.| Federal agencies, states compete to be fintech regulator (Jan 2021). | https://www.rollcall. com/2021/01/19/federal-agencies-states-compete-to-be-fintech-regulator/ 80. World Bank Group. | Global Experiences from Regulatory Sandboxes (2020). | pdf?sequence=1&isAllowed=yworldbank.org/bitstream/handle/10986/34789/Global-Experiences-from-Regulatory-Sandboxes.https://openknowledge.

84.

37 Government Support 85. Financial Conduct Authority (FCA). | Regulatory sandbox lessons learned report (Oct 2017). | https://www.fca.org. uk/publication/research-and-data/regulatory-sandbox-lessons-learned-report.pdf 86. Ernst & Young LLP. UK FinTech Census 2019, A snapshot: two years on (2019). | census-2019.pdfdam/ey-sites/ey-com/en_uk/topics/banking-and-capital-markets/uk-fintech-census-2019/ey-uk-fintech-https://assets.ey.com/content/ 87. Bank of International Settlement. | Inside the regulatory sandbox: effects on fintech funding (Nov 2020). | https:// www.bis.org/publ/work901.pdf 88. Digital Sandbox Pilot. | https://www.digitalsandboxpilot.co.uk/ mentioned above, the FCA also wished to have more products tested and introduced to the market. Therefore, it has been working with innovators to ensure that appropriate consumer protection safeguards are built into the new products and services.85

Cohort

end

The UK’s experience with the regulatory sandbox has proven to be successful. As of 2020, more than 375 fintech firms from over 50 countries have applied for the UK’s regulatory sandbox.86 Startups that participated in the first cohort of the UK’s sandbox received £135mn (US$188mn) in total equity funding. Around 80% of the sandbox participants who successfully tested their products remain in operation. Compared with fintech companies that did not join the sandbox, those who participated in the program raised an average of 15% (or £700,000 or US$972,705) 87 more in funding. In addition to the regulatory sandbox, the FCA collaborated with the City of London Corporation to pilot a “digital sandbox” from November 2020 to February 202188 to enhance regulatory support for innovating firms during the COVID-19 pandemic. The Digital Sandbox Pilot involved 28 teams testing their products and is now undergoing an assessment of its effectiveness. Application date

Number of applications received Number of firms accepted (tested) 1 8 Jul 2016 69 24 (18) 2 19 Jan 2017 77 31 (24) 3 13 Jul 2017 61 18 4 31 Jan 2018 69 29* 5 30 Nov 2018 99 29 6 31 Dec 2019 68 22 Total 407 153 * Includes 3 firms that were accepted from previous cohorts but did not proceed to test. Source: Financial Conduct Authority (FCA) [ Exhibit 11 ] : The UK Regulatory Sandbox

90. Monetary Authority of Singapore (MAS). | Fintech Regulatory Sandbox Guidelines (Nov 2016). | 91. IFLR. | Japan: Sandbox reform (Jul 2019). | https://www.iflr.com/article/b1lmxcdgyvbjv4/japan-sandbox-reform Harvard Business Review. | How the Japanese Government’s new sandbox program is testing innovations in mobility and technology (Feb 2020). | sandbox-program-is-testing-innovations-in-mobility-and-technologyhttps://hbr.org/sponsored/2020/02/how-the-japanese-governments-new93. fintechs/#:~:text=Florida%20and%20West%20Virginia%20have,that%20offer%20such%20a%20solutionhttps://nativefinance.org/news/more-states-establishing-regulatory-sandboxes-for94. Goo, Jayoung James, and Joo-Yeun Heo. “The Impact of the Regulatory Sandbox on the Fintech Industry, with a Discussion on the Relation between Regulatory Sandboxes and Open Innovation.” | Journal of Open Innovation: Technology, Market, and Complexity 6, no. 2 (2020): 43. | https://doi.org/10.3390/joitmc6020043.

f?la=en&hash=1F4AA49087F9689249FB8816A11AEAA6CB3DE833gov.sg/-/media/MAS/Smart-Financial-Centre/Sandbox/FinTech-Regulatory-Sandbox-Guidelines-19Feb2018.pdhttps://www.mas.

92.

Part I: Examination of Seven Fintech Hubs

In 2019, the US Department of the Treasury released the Fourth Report of a series on the Administration’s Core Principles for Financial Regulation, and noted that replicating a regulatory sandbox approach in the US would become complicated because of the inherent fragmentation of regulations in the country. Most states have securities commissioners and banking regulators. Arizona was the first state to offer a fintech sandbox in 2018, followed by Nevada, Utah, and Wyoming. In September 2020, Florida and West Virginia began to offer fintech sandboxes,93 making them the fifth and sixth out of fifty states to join in the support for fintech innovation. To date, there is no federal fintech sandbox in the US.

A year after the UK’s launch of the sandbox, Singapore became the first Asian country to set up regulatory sandboxes. The MAS created a flexible system with two types of sandboxes: one for more complex business models that may require customization; and the other a fast-track version for low-risk projects that are well understood by the market.89 Clear guidelines90 from application to exit of the sandbox including examples and explanation of different sandbox stages and information about the sandbox applicants can be found on the MAS website, which provides clarity and transparency. The sandbox also allows fintech firms to have more flexibility. For example, some of the legal and regulatory requirements during the sandbox period were relaxed to suit the needs of fintech firms. Three companies have already exited the MAS Sandbox and Sandbox Express in late 2020 and early 2021, and two firms are expected to graduate from the schemes in mid-2021.

In 2018, Japan launched its regulatory sandbox as a tool to reform previous systems to improve the business and regulatory environments.91 Though it was not a sandbox only for the fintech industry, it naturally attracted fintech companies, as IoT, big data and AI had rapidly generated innovations in recent years. As of February 2020, 129 companies were operating under the sandbox framework and conducting fintech, insurtech, smart living, healthcare and transportation experiments.92

According to recent research on the regulatory sandbox’s impact on the fintech industry in nine jurisdictions including the UK, Singapore, Hong Kong, and Japan,94 the introduction of regulatory sandboxes increased the size of venture investments in fintech companies compared with those areas where a regulatory sandbox has not yet been introduced. While it lacks sufficient data for us to determine the effectiveness of sandboxes, international interest in creating regulatory sandboxes as a means to encourage fintech innovation remains strong. Going forward, regulators need to develop appropriate policies and guidance to accompany well-designed sandboxes to reap the benefits of innovation, while safeguarding the financial system and also protecting both businesses and individuals.

89. Monetary Authority of Singapore (MAS). | Overview of Regulatory Sandbox. | https://www.mas.gov.sg/ development/fintech/regulatory-sandbox

39 Government Support HubFintech availableSandbox testingbordercross-ofParticipantsGFIN’s jurisdictionSandbox Authority dateLaunchof jurisdictionsandboxfirstin Sandbox features London Yes Yes UK FCA May 2016 1 sandbox with multiple cohorts New York No No US Varies by States Mar Sandbox)FinTech(Arizona’s2018 Only 6 states (Arizona, Nevada, Utah, Wyoming, Florida, and West Virginia) offer fintech sandboxes as of September 2020 FranciscoSan No No Shanghai Yes No China PBOC Dec 2019 Gradually expanding to 9 cities (Beijing, Shenzhen, Shanghai, Guangzhou, Suzhou, Chongqing, Hangzhou, Xiong’an New Area, and Chengdu) as of July 2020 Singapore Yes Yes Singapore MAS Nov 2016 Offers a fast-track route of the scheme (Sandbox Express, launched in Aug 2018) Tokyo Yes No Japan ofGovernmentJapan Jun 2018 Introduced as a mechanism for regulatory reform to facilitate the realization of innovative technologies and business models in Japan, therefore covers a wide range of industries including financial services, healthcare, mobility, and transportation. Zurich Yes No Switzerland CouncilFederalSwiss Aug 2017 2 sandboxes (Unregulated Sandbox and Innovator License) for persons who accept funds from the public of up to a total of CHF 1mn. The activities are not subject to supervision by FINMA and so do not require authorization, therefore deposits are not covered by the Swiss depositor protection regime. [ Exhibit 12 ] : Fintech Sandboxes in the Selected Hubs and their Relevant Jurisdictions

96. Norton Rose Fulbright. | China Now – Regulatory Reform in the Financial Services Industry (May 2018). | financial-services-industrywww.nortonrosefulbright.com/en/knowledge/publications/ec8bbc63/china-now---regulatory-reform-in-the-https://

97. The State Council, The People’s Republic of China. | Measures for Further Opening Up the Financial Sector (Feb 2021). | http://english.www.gov.cn/services/investment/202102/24/content_WS6035aa9fc6d0719374af960c. html 98. China Banking News. | Chinese Central Bank Releases Fintech Development Plan for 2019 – 2021 (Aug 2019). | for-2019-2021/https://www.chinabankingnews.com/2019/08/23/chinese-central-bank-releases-fintech-development-plan-

40 Part I: Examination of Seven Fintech Hubs HubFintech availableSandbox testingbordercross-ofParticipantsGFIN’s jurisdictionSandbox Authority dateLaunchof jurisdictionsandboxfirstin Sandbox features Hong Kong Yes Yes Hong Kong HKMA, SFC, IA Sep Sandbox)SupervisoryFintech(HKMA’s2016

95. HKTDC Research. | China Issues Guidelines on Development of Internet Finance (Aug 2015). | hktdc.com/en/1X0A34J5/hktdc-research/China-Issues-Guidelines-on-Development-of-Internet-Financehttps://hkmb.

Association, GFIN (Cont.) [ Exhibit 12 ] : Fintech

Sustainable Fintech Development Plans

CoinGeek, FINMA,

Source: FCA, MAS, PBOC, HKMA,

To ensure fintech’s growth can be long-term and sustainable, public funding schemes and regulatory sandboxes are only a starting point. Governments should regularly assess the fintech landscape locally, regionally, and globally, to draw up development plans for the short-, medium-, and long-term.

Trade

The sandboxes of the HKMA, the SFC, and the IA are linked up so that there is a single point for firms intending to conduct a pilot trial of a crosssector fintech product. SFC, External Organization, Office of the Attorney General (Arizona State), Native American Financial Services Sandboxes in the Selected Hubs and their Relevant Jurisdictions

IA, Japan

The Asian hubs: Shanghai, Singapore, and Tokyo China is one of the most proactive countries with development plans for fintech. In July 2015, the PBOC, Ministry of Industry and Information Technology (MIIT) and eight other authorities jointly published the Guiding Opinions on Promoting the Sound Development of Internet Finance,95 which is regarded as the legislative foundation for internet finance businesses in China. In April 2018, the CBIRC established a financial reform roadmap in the Measures on Facilitating the Further Opening-up of Banking and Insurance Sectors,96 which also set out the then-current legislation and future action plan. In July 2019, 11 measures were announced97 by the Office of Financial Stability and Development Committee of the State Council of the China’s Central Government to further open up the financial sector. In September 2019, the PBOC released a three-year FinTech Development Plan98 that listed the key development targets and missions for fintech. The Plan proposes to establish and improve the “four beams and eight pillars” for China’s fintech development by 2021, and outlined six key tasks and priorities for strengthening the capability of fintech applications

41 Government Support and the regulation of technology-driven innovations, preventing financial risks, and driving China’s fintech development into the international forefront. According to the threeyear plan, China will strengthen fintech regulations and build a fundamental and unified regulatory system.

105.Tokyo

100.Resources/Publications/Research-Innovation-and-Enterprise-RIE-2020/RIE2020.pdfhttps://www.mti.gov.sg/-/media/MTI/MonetaryAuthorityofSingapore.|

The Singapore government has launched a series of initiatives to upgrade its tech infrastructure in the past decade. In 2016, it published a four-year plan entitled Research Innovation and Enterprise 2020 Plan99 that earmarked S$19bn (US$142bn) for investment in the country’s digital economy, advanced manufacturing and engineering, and more.

In 2017, the MAS launched its Financial Services Industry Transformation Map (ITM),100 which is a strategic plan for the sector after months of deliberation between the industry and the MAS. The ITM outlines the growth strategies by business lines – with fintech being one of them – and agendas for talent development, innovation and technology Beingadoption.the world’s third largest economy 101 after the United States and China, the Japanese financial services market has been expanding rapidly, with a market size worth around US$1.96bn in 2018 and expected to grow to more than US$11bn by 2022.102 In 2016, the Japanese government designated fintech as a promising growth area in its Japan Revitalization Strategy 2016. Since then, the government has modified regulations to promote long-term growth of the sector. This includes amending the Banking Act103 to establish IT-related subsidies for developing fintech businesses which encouraged many Japanese banks to open their APIs to fintech firms to enhance collaboration and digital transformation. In 2017, TMG is determined to make Tokyo an “unrivalled global financial center”,104 which was unveiled in the “Global Financial City: Tokyo” Vision . Following the Vision are initiatives that revitalize the Japanese financial sector in order to re-build Tokyo as the top global financial city in Asia.

99. National Research Foundation, Prime Minister’s Office of Singapore. | Research Innovation Enterprise 2020 Plan: Winning the Future through Science and Technology (Aug 2016). |

106.Tokyo

With a primary focus of attracting foreign startup companies to Tokyo, TMG launched the accelerator program “FinTech Business Camp Tokyo” in May 2019, and selected 12 companies from six different regions including Hong Kong, Singapore, and the UK to participate.105 A similar program entitled “FinTech Program: Asia meets Tokyo” started accepting applications in late 2020, and 52 companies from nine countries or regions in Asia applied. Eight companies including four from Singapore and three from Hong Kong were invited to participate in the program.106

101.

Financial Services Industry Transformation Roadmap. | https://www.mas. gov.sg/development/financial-services-industry-transformation-roadmap International Monetary Fund. | World Economic Outlook Database (Apr, 2021). | https://www.imf.org/en/ Publications/WEO/weo-database/2021/April Yano Research Institute. (Sept 2019). https://www.yanoresearch.com/en/press-release/show/press_id/2232 Nomura Research Institute. | APIs are essential to Japanese banking innovation (Jan 2020). | https://www.nri. Fintech News Hong Kong. | Fintech In Japan: How is The World’s 3rd Largest Economy Tackling Fintech? (Jan 2019). | https://fintechnews.hk/8169/fintechjapan/fintech-in-japan-overview-landscape/ Metropolitan Government. | Tokyo Metropolitan Government has selected the foreign companies which will participate in the Accelerator Program FinTech Business Camp Tokyo (Aug 2019). | https://www.metro. tokyo.lg.jp/english/topics/2019/0809_02.html Metropolitan Government. | Announcing the companies participating in TMG’s “FinTech Program: Asia meets Tokyo” accelerator program (Jan 2021). | https://www.metro.tokyo.lg.jp/english/topics/2021/0108_01.html

102.

103.

com/en/knowledge/publication/fis/lakyara/lst/2020/01/01 104.

109. HM Treasury, FCA, Bank of England. | Cryptoassets Taskforce: final report (Oct 2018). | final_report_final_web.pdfservice.gov.uk/government/uploads/system/uploads/attachment_data/file/752070/cryptoassets_taskforce_https://assets.publishing.

The UK Government published the first Fintech Sector Strategy107 in 2018. To maintain and extend the country’s comparative advantage, this Strategy presented plans and projects, including recommendations for the FCA and the BoE to collaborate and develop a digital regulatory reporting project to increase compliance efficiency. The Strategy also encouraged FCA to partner with larger financial institutions and fintech firms to attract young talent from diverse backgrounds to build a career in the fintech sector and support the growth of a domestic talent pipeline. In addition, the Strategy laid out the UK’s plan to launch the world’s first Onboarding Guidelines to facilitate partnerships between fintech startups and incumbents. It also announced six Regional Fintech Envoys108 to accelerate the growth of fintech firms across the country to ensure the balanced development of fintech across the whole nation. Last but not least, the HM Treasury formed a Cryptoassets Taskforce109 with the FCA and the BoE to examine the risks of cryptoassets and the potential benefits of the underlying Distributed Ledger Technology (DLT).

Part I: Examination of Seven Fintech Hubs The European hubs: UK and Zurich

110. Department of International Trade. | UK Fintech – State of Nation (Apr 2019). | gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdfhttps://assets.publishing.service.

Apart from domestic policy, the UK also formed a Fintech Steering Board110 that brought together academics, industry experts, government representatives and regulators to drive investment from private sector into the fintech service. In addition to the Fintech Bridge Agreements with other fintech hubs, it partnered with emerging markets to form a supportive fintech ecosystem abroad to promote more financial inclusion and drive greater cross-border activity. Currently, the UK’s plans revolve around maintaining its position as a leading fintech hub in Europe, with its utmost mission being to ensure that London continues to be a leader of global financial services after Brexit.

107. HM Treasury. | Fintech Sector Strategy: Securing the Future of UK Fintech (Mar 2018). | print.pdfservice.gov.uk/government/uploads/system/uploads/attachment_data/file/692874/Fintech_Sector_Strategy_https://assets.publishing.

Tackling cyber risk in the EU financial system is the current top priority of the European Parliament. The Swiss FINMA also regards fighting cyber risk as its top priority, as banks are exposed to the increasing risk of cyberattacks, especially as IT services are increasingly being outsourced. Although no specific initiatives have been announced, the FINMA is recruiting experts in managing cyber security risk to prevent breaches. In terms of market size, the Zurich region is the largest financial center in Switzerland, accounting for 45%111 of the economic value in the Swiss financial sector. Zurich is also home to Swiss Sustainable Finance (SSF), a national platform with an international network focusing on strengthening Switzerland’s position in the global marketplace for sustainable finance by informing, educating, and fostering growth. Being one of the frontrunners in sustainable finance in the world, the Swiss strive to become a leading international hub in this arena. Early in the 1980s, Switzerland launched the first sustainable financial instruments and in the 1990s became home to the first asset management company focused solely on

In Europe, London as the capital city of the UK, which has a strong position and aspiration to develop fintech, is regarded as the fintech leader among its European counterparts.

108. Department of International Trade. | UK Fintech – State of Nation (Apr 2019). | gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdfhttps://assets.publishing.service.

111. Zurich Financial Center. | Facts and Figures 2019/2020 edition (Jan 2019). | financialcenter_factsfigures_2019_2020.pdfdam/zhweb/bilder-dokumente/themen/wirtschaft-arbeit/wirtschaftsstandort/dokumente/englisch/zurich_https://www.zh.ch/content/

Overall Observation of the Hubs’ Development Plans

The state allows companies engaged in virtual currency business activities to use the NMLS to apply for, update, and renew their operating licenses, including BitLicenses

113.

112. Swiss Banking. | Sustainable finance in Switzerland: from pioneer to a premier international hub - Basic positions and effective approaches (Jun 2020) | 74c72717e1cd19bc547b6f048a020b56/SBA_SustainableFinance_2020_EN.pdfhttps://www.swissbanking.ch/_Resources/Persistent/3/3/e/7/33e7c9a4 Bloomberg Law. | California Aims to Foster Fintech Innovation. Don’t Say Sandbox (1) (Jan 2020). | https://news. bloomberglaw.com/banking-law/california-aims-to-foster-fintech-innovation-dont-say-sandbox Department of Financial Protection and Innovation. | Governor Newsom Proposes to Revamp DBO with Stronger Consumer Financial Protections and Enforcement Team (Jan 2020). | https://dfpi.ca.gov/2020/01/15/january2020-monthly-bulletin/ 115. CSBS. | Nationwide MultiState Licensing System. | https://www.csbs.org/nationwide-multistate-licensingsystem#nmls-resources

The New York DFS was set up to demonstrate New York regulators’ leading expertise in regulating innovative financial services while protecting individuals. It was the first state agency to release a comprehensive framework for regulating digital currency related to businesses with the implementation of the BitLicenses. As of May 2020, 25 companies have been authorized to conduct digital currency operations. New York state also exemplifies state collaboration with the Conference of State Bank Supervisors (CSBS), announced in 2019. In recent years, state regulators have focused on developing greater cooperative approaches to supervise non-bank financial services companies. For example, the Nationwide Multi-state Licensing System (NMLS), a technology platform that functions as a system to record all licensing activities of 62 state or local government agencies.115

A vast variety of fintech companies have chosen the US as their starting point. New York is currently the fastest-growing fintech ecosystem, while San Francisco is the top innovation hub in the country. Without a central coordinator at the federal level to regulate fintech activities, state regulators might have different plans for their own states that they may also aspire to apply nationwide. California had a plan in early 2020 to create an Office of Innovation in San Francisco and serve as a hub for both fintech startups and blue-chip financial companies,113 but more than a year has passed without any further development. On the other hand, the newly formed Department of Financial Protection and Innovation (DFPI) has become the primary state regulator for most fintech companies in California. The DFPI is to establish an Office of Financial Technology Innovation 114 based in San Francisco, which is expected to engage with the financial services sector, fintech companies, and consumers to advocate and shape its policies.

The first task of the office is to examine the state regulatory scheme for digital currency.

114.

The American hubs: New York and San Francisco

43 Government Support sustainable investment. In 2018, assets worth around CHF$720bn (US$788bn) were managed according to environmental, social and governance (ESG) criteria, equivalent to around 21% of total assets under management in the country. Compared with the global average of sustainable investments at roughly only 11%,112 the Swiss figure highlights the effort and expertise of its financial sector in pursuing sustainability.

While the European and American hubs are exploring their best moves for the longterm development of their fintech ecosystems, the Asian fintech hubs seem to be equipped with solid development plans and each is determined to claim the ultimate position as a top global fintech hub.

Part Examination of Seven Fintech Hubs

"Guiding Opinions on Promoting the Sound Development of Internet Finance" was published - 2018: "A financial reform roadmap in the Measures on Facilitation the Further Opening-up of Banking and Insurance Sectors was established - 2019: 11 measures were announced and three-year FinTech Development Plan was released - 2021: The "four beams and eight pillars" for China's fintech development will be establised and improved; Six key tasks and priorities for strengthening the capability of fintech applications and the reglution of technology-driven innovations will be outlined

Our observations so far have pointed to London and Singapore as solid examples of where a government has balanced regulation with highly positive engagement with the sector. The regulatory environments of London and Singapore have been key to the development of both hubs’ fintech sectors. On the other hand, the US is by far the most uncoordinated because of the fragmented policy structures set up by cities, states, and the federal government.

London and Singapore have been adopting similar approaches in terms of regulating the fintech industry and offering public funding and other support schemes for the industry. The countries of both hubs demonstrate positive attitudes towards incorporating fintech into their national plans. Both hubs have a central agency – FCA for London and MAS for Singapore – to take the lead in working with the fintech sector. The FCA set up Project Innovate in 2014 to support innovation in financial services. Over the years, FCA has enhanced their regulation framework and government support in response to the 13 : Fintech Development Plans of the Asian Hubs - 2016: Fintech was officially designated as a promising growth area in it's Japan Revitalization Strategy 2016 with modification on related regulations to promote long-term growth of the sector - 2017: "Global Financial City: Tokyo" Vision was set out by Tokyo Metropolitan Govenment and initiatives that revitalize the Japanese financial sector in order to re-bulid Tokyo into the top global financial city in Asia - 2019: The accelerator program "FinTech Business Camp Tokyo" was launched by Tokyo Metropolitan Government - 2020: "FinTech Program: Asia meets Tokyo" started accepting applications, 52 companies from nine countries or regions in Asia have applied

The Government’s Role in the Evolution of Fintech

]

- 2016: A four-year plan entitled Research Innovation and Enterprise 2020 Plan was published - 2017: Financial Services Industry Transformation Map (ITM) was launched, which is a strategic plan for the sector after months of deliberations between the industry and the Monetary Authority of Singapore (MAS) - 2015: The legislative foundation for internet finance business

[ Exhibit

The Vital Role of Government Support Government support is an enabler of the growth and stability of a healthy fintech industry. Fintech-specific grants and funding opportunities should be readily available to encourage innovation. Making it easy to apply for grants can only help people bring their ideas to fruition. The presence of sandbox programs and similar initiatives to provide a safe environment for pilot trials is also essential for promoting innovation. By actively engaging with industry practitioners, a government can better understand industry needs and help foster a collaborative culture in fintech R&D, and by taking a proactive approach in making short-, medium-, and long-term plans, a government can provide not only stability, but an enhanced environment for the growth and development of the fintech.

Despite the US layered governing structure making it difficult for the different levels of government to effectively provide targeted support, US regulators show strong commitment to foster fintech development. The governments of New York and San Francisco have initiated different schemes to support the industry. For example, the New York State Department of Financial Services (NYDFS) piloted the program Project Whitewall to support insurtech innovators seeking regulatory guidance. Following Project Whitewall, FastForward was launched117 in June 2020 to support innovation in financial services. Meanwhile, San Francisco has also planned a program118 for fintech companies to work with regulators on products and services. The government undoubtedly has a leading role in determining the direction of fintech industry development. The nature of fintech with its technology-driven innovation poses difficulties to regulators because financial services are inherently a heavily regulated industry. Thus, regulators have the delicate task of striking a balance between regulating financial services while not hindering the development of fintech innovation. Frequent engagement and collaboration with the industry helps regulators encourage growth, build trust, and manage risks, all while supporting the industry.

116. Financial Conduct Authority (FCA). | Project Innovate: Call for input Feedback Statement (Oct 2014). | https:// www.fca.org.uk/publication/feedback/fs-14-2.pdf

117. New York State, Department of Financial Services: Program to drive innovation financial services and products for new yorkers in the covid-19 era (Jun, 2020). | https://www.dfs.ny.gov/reports_and_publications/press_ releases/pr202006091

45 Government Support industry’s demands. We find that many of the key proposals provided in FCA’s “Project Innovate: Call for input – Feedback Statement”116 published in October 2014 have been addressed and implemented in FCA’s work. One interesting example is that comments on the inadequacy of FCA’s website, led to the FCA revamping it and turning it into one of the most informational and user-friendly websites among the hubs, with easy-to-find, clear, and comprehensive fintech-related information and resources. The MAS website also provides clear and comprehensive fintech information and resources. Being the sole regulator in Singapore has given some advantages to MAS with its integrated approach. It has been proactive in pursuing regulatory cooperation and facilitating collaboration on both within-border and cross-border fintech activities. Being the first two countries who adopted regulatory sandboxes, London and Singapore were also the first pair to enter into a “fintech bridge” agreement to encourage information-sharing and help fintech firms expand into each other’s markets.

118. Bloomberg Law. | California Aims to Foster Fintech Innovation. Don’t Say Sandbox (1) (Jan 2020). | https://news. bloomberglaw.com/banking-law/california-aims-to-foster-fintech-innovation-dont-say-sandbox

In terms of public funds for fintech companies, Hong Kong targets all development stages from early startup stage, business scale-up, and expansion to global market. Different purposes such as R&D, talent acquisition, business development, fundraising and overseas expansion have been covered in the government’s financial support programs.

Another example is the Global Fast Track Programme, a business-driven and collaboration-orientated program launched in August 2020, which allows eligible fintech companies to obtain government support up to US$2.6mn regardless of their pitching results.120 This kind of public funding support given to the fintech and financial services industries has greatly facilitated the fintech development in Hong Kong so far, despite disruptions caused by the COVID-19 pandemic.

46 Part I: Examination of Seven Fintech Hubs

125.

Since the current term of government took office in 2017, it has allocated more than HK$100bn HONG KONG Government Support Insufficient Sufficient (US$12.8bn) to support the local Innovation and Technology (I&T) development. 121 The Hong Kong government had established the Innovation and Technology Fund (ITF) in as early as 1999 to encourage innovation and assist Hong Kong companies with technological upgrades and to embed more innovative ideas into their products. Currently, 17 funding schemes are available under the ITF, each of which has specific objectives and scopes, ranging from providing funding for I&T projects to supporting the development of the manufacturing and services industries in Hong Kong.122 None of the fintech hubs examined in this report has offered the financial support to I&T and fintech development of a comparable scale and scope of Hong Kong’s ITF. However, according to a paper from the Hong Kong Legislative Council, only HK$2bn (US$258mn) out of HK$34bn (US$4bn) of the approved budget was released under the ITF in 2018-2019.123 Hong Kong is among the first global financial centers to offer regulatory sandbox programs after London and Singapore. The Fintech Supervisory Sandbox (FSS) was launched in 2016, enabling banks and their technology partners to conduct pilot trials and collect data and other users’ feedback to improve their products and solutions before their launch, then upgraded to its 2.0 version in September 2017 to offer additional features to provide quick feedback and a single point of entry for HKMA’s, SFC’s and IA’s sandboxes for pilot trials of cross-sector fintech products.124 As of February 2021, the FSS has enabled more than 200 fintech pilot trials and successfully facilitated more than 150 cases of collaborations between banks and fintech companies.125 However, some fintech companies revealed that it was difficult to collect data because the financial industry is strictly compliant with data privacy legislation. It is necessary to increase the transparency of Hong Kong as a Global Fintech Hub: Government Support Cyberport. Fintech Proof-of-Concept Subsidy Scheme. https://pocsubsidy.cyberport.hk/en/ 120. CNBC. The Hong Kong Fintech: Fast Track. https://www.cnbc.com/advertorial/hong-kong-the-fintech-fast-track/ The HKSAR Government. Speech by S for IT at business luncheon in Seattle (English only) (with photo) (Sep 2019). https://www.info.gov.hk/gia/general/201909/17/ P2019091700500.htm

One example is the Fintech Proof-of-Concept Subsidy (PoC) Scheme, a fintech-focused funding program launched by the FSTB in January 2021, to encourage the collaboration between traditional financial institutions and fintech companies and startups to develop PoC projects for possible innovative financial services solutions and products, 119 where each approved project can be granted up to HK$150,000 (US$20,000) funding support.

119.

122. Innovation and Technology Commission, The HKSAR Government. About the Innovation and Technology Fund. https://www.itf.gov.hk/en/funding-programmes/ index.html

123. Council Business Division 1, Legislative Council Secretariat. Panel on Commerce and Industry, Meeting on 21 April 2020, Updated background brief on the funding schemes under the Innovation and Technology Fund (Apr 2020). https://www.legco.gov.hk/yr19-20/english/panels/ci/papers/ci20200421cb1-535-4-e.pdf Hong Kong Monetary Authority. Fintech Supervisory Sandbox (FSS). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/fintechsupervisory-sandbox-fss/ Hong Kong Monetary Authority. Fintech Supervisory Sandbox (FSS). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/fintechsupervisory-sandbox-fss/

124.

121.

126. Hong Kong Monetary Authority. Distributed Ledger Technology (DLT). https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech/researchand-applications/distributed-ledger-technology-dlt

131. Office of the Government Chief Information Officer. What is "iAM Smart"?. https://www.iamsmart.gov.hk/en/about.html

127. Hong Kong Monetary Authority. FPS Fights the Epidemic with You (Apr 2020). https://www.hkma.gov.hk/eng/news-and-media/insight/2020/04/20200424/

133. Hong Kong Monetary Authority. The HKMA Unveils “Fintech 2025” Strategy (Jun 2021). https://www.hkma.gov.hk/eng/news-and-media/pressreleases/2021/06/20210608-4/

In addition to the sandboxes, the Hong Kong government has been an advocate of fintech. Hong Kong has identified different opportunities for fintech applications and started a number of projects in recent years to drive fintech adoption in the financial services and other industries.

The Hong Kong government has prioritized fintech development and introduced a range of regulation regimes, policy initiatives and funding schemes to promote fintech and facilitate its development in different financial perspectives. Both financial and non-monetary support from the government including different types of government support related to fintech ranging from funding schemes to sandboxes and other innovation initiatives are in place, but the effectiveness of each needs to be enhanced to maximize their benefits in order to contribute to the growth of fintech.

47 Government Support the regulatory sandboxes to ensure that banks understand how data could be retrieved in the sandbox environment, provide technical and compliance support for the sandbox participants, and consider providing incentives to smaller banks and commercial enterprises in order to motivate more participation in regulatory sandboxes.

132. Hong Kong Monetary Authority. The HKMA developed a two-year roadmap to promote Regtech adoption (Nov 2020). https://www.hkma.gov.hk/eng/news-andmedia/press-releases/2020/11/20201103-3/

127The volume of transactions increased even more after the outbreak of the COVID-19 pandemic. In April 2020, the average daily turnover reached 264,000 real-time transactions, which is more than four times higher than the first full month of its launch in October 2018.128 With a strong penetration and participation of 31 banks and 12 SVFs,129 the FPS is a widely recognized fintech infrastructure that has improved Hong Kong’s overall innovation and technology adoption levels. The iAM Smart platform, formerly known as Electronic Identity (eID) and first announced in the 2017 Policy Address, is one of the key infrastructure projects for Hong Kong’s smart city development.130 It was officially launched in December 2020, with the plans to enable around 110 government online services by the middle of 2021. 131 The platform provides a one-stop personalized digital government services platform for all Hong Kong residents to conduct government and commercial transactions online, and can facilitate customers’ remote on-boarding, identity verification, and more convenient and effective online transactions. The rapidly changing financial services and global technology environments leave the banks no choice but to explore advanced technologies to enhance their risk management and compliance to cope with their evolving banking business models. In such context, the HKMA announced a two-year roadmap to promote regtech adoption in the Hong Kong banking sector in November 2020,132 and in June 2021 further announced its “Fintech 2025” strategy with five focus areas to drive the fintech development of Hong Kong.133

For example, the HKMA began their study on Distributed Ledger Technology (DLT) in 2016 and published two whitepapers in 2016 and 2017 respectively, 126 covering potential opportunities and risks in DLT applications, and made policy recommendations on related issues like legal and compliance issues, governance framework, risk management, etc. In 2018, the HKMA launched the Faster Payment System (FPS) for all banks and e-wallet operators in Hong Kong, which enabled their customers to make crossbank and cross-e-wallet payments, in order to address the growing needs for more efficient digital payment services in the Hong Kong market. The FPS has been widely adopted among the financial sector and the public. As of April 2020, the FPS has recorded more than 4.6 million registrations and processed more than 65 million transactions with a total amount of more than HK$1tn (US$129bn).

Financial Services and the Treasury Bureau, The HKSAR Government. Legislative Council Panel on Financial Affairs - Development of Financial Technologies (Jun 2020). https://www.legco.gov.hk/yr19-20/english/panels/fa/papers/fa20200601cb1-674-4-e.pdf

130. Hong Kong Monetary Authority. Launch of iAM Smart (Dec 2020). https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-andcircular/2020/20201229e1.pdf

128. Financial Services and the Treasury Bureau, The HKSAR Government. Development of Financial Technologies (Jun 2020). https://www.legco.gov.hk/yr19-20/english/ panels/fa/papers/fa20200601cb1-706-2-e.pdf

129.

48 Part I: Examination of Seven Fintech Hubs The value of global investment in fintech dramatically increased between 2010 and 2019, with a decrease in 2020 due to coronavirus outbreak measures that affected many economic sectors worldwide.134 The global fintech market is expected to have continuous growth and reach a market value of approximately US$305bn by 2025. 135 Higher usage in digitization, including the promotion of disruptive fintech solutions and digital transformation of traditional financial institutions, and more cross-border, collaborative activities are expected to be key drivers of growth. Fintech hubs will continue to strive to attract fintech investments from around the world. III. ENVIRONMENTBUSINESS dollarsU.S.billioninValue 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 9 18.9 45.4 67.1 63.4 59.2 145.9 105.3 168 6 4050100150200 Total Value of Investments into Fintech Companies Worldwide from 2010 to 2020 (In billion U.S. dollars) Sources: KPMG; PitchBook @ Statista Additional Information: Worldwide; 2010 to 2020 [ Exhibit 14 ] : Total Investments into Fintech Companies Globally 2010-2020, US$ billion An attractive fintech business environment not only represents potentially substantial benefit to the economy, but would also facilitate knowledge exchange between local and international businesses. Ease of starting a business, trading, and fundraising; access to sizable and resilient markets; and the ability to serve as a springboard for the global growth of fintech companies are some of the major factors an international fintech hub needs to address. 134. Statista. | Total investments into fintech companies globally 2010-2020 (Mar 2021). | https://www.statista.com/ statistics/719385/investments-into-fintech-companies-globally/ 135. CISION. | FinTech Industry Report 2020-2025 - Trends, Developments and Growth Deviations Arising from the COVID-19 Pandemic (June 2020). | 2025---trends-developments-and-growth-deviations-arising-from-the-covid-19-pandemic-301080282.htmlhttps://www.prnewswire.com/news-releases/fintech-industry-report-2020-

Institutionally speaking, having a business-friendly tax system or providing tax incentives for startups and R&D activities would be positive ways to attract foreign fintech companies. Simultaneously, fintech awareness and acceptance in society is also of high importance. The willingness of people to use fintech products and solutions can create market demand. Given the innovative nature of fintech, intellectual property should be well protected by law. Above all, a clear and transparent legal framework is essential for a balanced regulatory environment that would provide a strong foundation to maintain a free market as well as with a high quality of regulatory effectiveness to instill confidence in investors and business-makers.

49 Business Environment

A vibrant fintech hub with a well-established, world-class financial and technology infrastructure will find it easier to attract fintech companies from around the world. Digital engagements and synergy should be present across different fintech organizations regardless of their size, scale, maturity, and area of expertise. In addition, having a well-organized, resourceful, and cooperative fintech community increases a city’s attractiveness to businesses. Hosting international and regional events regularly facilitates networking, collaboration, business opportunities and ultimately strengthens both local and global fintech communities. Collaborations of all kinds, either within fintech sectors or involving fintech and other sectors (e.g., between traditional financial institutions and fintech startups, or between the fintech and lifestyle ecosystems) is one measure of a hub’s community strength. The number of fintech companies, number of unicorns, and the depth and range of fintech activities are also indicators of the robustness of a fintech community.

The Selected Hubs’ Business Environments as Perceived by Global Standards Exhibit 15 summarizes how the countries of the hubs are ranked in terms of their business environments in different global indexes. Overall, all of these countries rank within a close range from each other and are among the top globally, although Zurich and Singapore stand out as being more well-positioned than the others. For example, in the Global Innovation Index 2020, the range goes from Switzerland ranked 1st to Japan at 16th, which in a field of 131 means they are all relatively strong compared with the other economies in the survey. In the Ease of Doing Business Index 2020, which surveys 190 economies, Singapore ranks highest in the group at 2nd, followed by the US and the UK at 6th and 11th respectively. The range of rankings for each hub indicates that they may be stronger or weaker in one aspect or another, but each hub has its own unique features that attract foreign fintech businesses. We will discuss the strengths of each hub in more detail below.

50 Part I: Examination of Seven Fintech Hubs Country (Selected Hub) (Zurich)Switzerland Singapore (London)KingdomUnited United States (New York & San Francisco) (Tokyo)Japan (Shanghai)China Index IndexInnovationGlobal2020 1/131 8/131 4/131 3/131 16/131 14/131 2020RightsPropertyInternationalIndex 2/129 3/129 18/129 13/129 5/129 49/129 Ease of IndexBusinessDoing2020 36/190 2/190 11/190 6/190 29/190 31/190 IndexPerceptionsCorruption2020 3/180 3/180 11/180 25/180 19/180 78/180 IndexSecrecyFinancial2020 3/133 5/133 12/133 2/133 7/133 25/133 Tax as % of 2019)(BaseGDPyear 10.2% 13.3% 25.3% 10% 11.3% 11.2% Source: (1) Global Innovation Index 2020, Source: WIPO, 2020, 131 economies surveyed (2) International Property Rights Index 2020, Source: (Property Rights Alliance, IPRI, 2020), 129 economies surveyed (3) Ease of Doing Business Index 2020, Source: World Bank Group, Doing Business 2020), 190 economies surveyed (4) Corruption Perceptions Index 2020, Source: Transparency Int., 2020, 180 economies surveyed (5) Financial Secrecy Index, Source: Tax Justice Network, 2020, 133 economies surveyed (6) Tax as % of GDP 2019, Source: (World Bank, Tax revenue (% of GDP) 2019; CEIC, Tax Revenue: % of GDP) [ Exhibit 15 ] : Rankings on Business Environments on Global Indexes of the Selected Hubs

136. Department of International Trade. | UK Fintech – State of Nation (Apr 2019). | pdfgov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.https://assets.publishing.service.

Additionally, the UK has one of the lowest average corporation tax rates in the G20 economies, the joint lowest statutory corporate tax rate (19%) of the G7, and one of the world’s largest double tax treaty networks.140 The UK government does not conduct fintech-specific tax-related programs, but fintech startups are covered under existing schemes. Some examples are the Seed Enterprise Investment Scheme (SEIS), and the Enterprise Investment Scheme (EIS). In addition, it set up several tax cutting regimes such as (1) Social Investment Tax Relief (SITR); (2) Venture Capital Trust (VCT); (3) Entrepreneur’s Relief; and (4) Investor’s Relief, to help businesses reduce capital gains taxes, thus helping to attract more investment to the country. UK firms can benefit from a capital gains tax cut up to 50%, with a £1.2mn (US$1.69mn) upper limit. 141 The UK government has other innovation-related tax reduction schemes as well, including: (1) a patent box regime; (2) a 10% income tax deduction on patent gains; and (3) R&D tax credits to encourage R&D expenditure.

The UK has established itself as the center of European fintech investment, with mature investment activities across the entire fintech lifecycle from seed funding to M&A. In 2019, the UK fintech sector generated an estimated revenue of £11bn (US$15.5bn), up from £6.6bn (US$9.3bn) in 2015.136 It employs around 60,000 people up and down the UK, where London is a global hub to more than 20 fintech accelerators.137 London-based companies accounted for half of the 10 largest European investments recorded in 2019. The city attracted 114 investments with a record-breaking value of more than £1.6bn (US$2.3bn) in the first eight months alone.138 In 2020, London attracted £4.1bn (US$5.7bn) VC and ranked second globally, just behind the US.139 Companies may have to anticipate a higher business cost for setting up in the UK, but its strong reputation for the rule of law and high standard of regulation are attractive to both MNCs and startups. The English and Welsh Common Law is the most widely used legal system, which covers almost one third of the world’s jurisdictions and has established a unique advantage in providing legal services to businesses internationally. Being a leader in fintech regulation, the UK develops and exports related policies to other jurisdictions, sets good examples, and upholds the standard internationally.

142

51 Business Environment

London: Well-Respected Legal System and Mature Ecosystem

137. Findexable. | Findexable Global Fintech Rankings 2020 (2019). | https://findexable.com/wp-content/ uploads/2019/12/Findexable_Global-Fintech-Rankings- 2020exSFA.pdf 138. Warrington, J. | London overtakes New York to steal global fintech investment crown (Sept 2019). | https://www. cityam.com/london-overtakes-new-york-to-steal-global-fintech-investment-crown/ 139. England, J. | UK ranked second to US for fintech capital funding in 2020 (Jan 2021). | fintechmagazine.com/financial-services-finserv/uk-ranked-second-us-fintech-capital-funding-2020https://www. 140. City of London. | The Global City (2021). | https://www.theglobalcity.uk/the-uk-offer/business-environment 141. HM Revenue & Customs. | Use a venture capital scheme to raise money for your company (Sep 2018). | https:// www.gov.uk/guidance/venture-capital-schemes-raise-money-by-offering-tax-reliefs-to-investors

142. TWP Accounting. | R&D (Research and Development) Tax Credits and the Patent Box Tax Relief (Apr 2019). | https:// www.twpaccounting.co.uk/blogs/rd-research-and-development-tax-credits-and-the-patent-box-tax-relief/

[ Exhibit 16 ] :

Rating of the Most Attractive Cities for Fintech Companies to be Located in Europe in 2020 Statista Ranking of most attractive cities for fintech companies to be located in Europe in 2020 (June, 2020). Additional Information: Europe; Savills; 2020 Note: 1. The Fintech Occupier Index ranks European cities within Savills European occupier network by their attractiveness to fintech occupiers to locate. The index takes into consideration three main criteria: the demographics of the city, talent and innovation, affordability and business environment. Ranking of Most Attractive Cities for Fintech Firms to be Located in Europe 2020

Source:

52 Part I: Examination of Seven Fintech Hubs Fintech is more than a subsector in the UK. In 2019, the fintech adoption rate in the UK reached 71%, more than quadrupled from the 17% in 2015. 143 Across services in sustainable finance and cutting-edge technology, companies in the UK can easily access the global market. As the heart of the UK, London has the world’s highest concentration of financial and professional services firms, and over half of the traditional financial institutions set disruption at the core of their business strategies.144 With its attractiveness to venture capital investment, London is ranked as the leading fintech hotspot on the 2020 Fintech Occupier Index.145 Businesses in the UK can benefit from its rich talent pool, well-established business environment, and forward-looking regulations. 143. EY. | Global Fintech Adoption Index 2019 (2019). | topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdfhttps://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/ 144. Department for International Trade, HM Treasury and Innovate Finance. | UK Fintech – State of the Nation. (Apr 2019). | file/801277/UK-fintech-state-of-the-nation.pdfhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ 145. https://www.statista.com/statistics/874579/leading-cities-for-fintech-europe/ 0255075100125scoreIndex London Berlin Paris Barcelona Manchester Madrid Dublin Stockholm Amsterdam Warsaw Munich Copenhagen Milan Budapest Prague Frankfurt Brussels Bucharest Vienna Lyon Lisbon Oslo Athens

152 Between

53 Business Environment 146. Fintechnews Switzerland. | Swiss Fintech Startups Raised CHF 360M in 2019: Swiss Venture Capital Report 2020 (Feb 2020). | venture-capital-report-2020/32989/https://fintechnews.ch/fintech/swiss-fintech-startups-raised-chf-360m-in-2019-swiss147. Switzerland Global Enterprise. | Switzerland remains global innovation champion (Sep 2020). | https://www.s-ge. com/en/article/news/20203-ranking-global-innovation-index 148. WIPO. | Global Innovation Index 2020 (2020). | https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2020.pdf 149. INSEAD. | The Global Talent Competitiveness Index 2020: Global Talent in the Age of Artificial Intelligence (2020). | https://www.insead.edu/sites/default/files/assets/dept/globalindices/docs/GTCI-2020-report.pdf 150. Financial Secrecy Index indicates the standard of global secrecy and the scale of offshore financial activities of countries, which are highly related to financial flows or capital flight. For more details, please see Tax Justice Network. | Financial Secrecy Index - 2020 Results (2020). | https://fsi.taxjustice.net/en/introduction/fsi-results 151. Forbes. | The Forbes Fintech 50: The Most Innovative Fintech Companies In 2020 (Feb 2020). | https://www. forbes.com/fintech/2020/#34ff43724acd 152. Forbes. | Best States for Business 2019 - New York. | https://www.forbes.com/places/ny/?sh=5df806876a76

Zurich: Top in Innovation with a Quality Workforce Compared with London, Zurich’s market size is currently much smaller, but it has the potential to become a leading European fintech hub. In 2019, Swiss fintech startups raised CHF$360mn (US$400mn) through 39 deals, of which Zurich attracted the most fintech investments with close to 85% of funding in information and communication technologies (ICT) and fintech.

In 2020, the US had overtook Switzerland on the Financial Secrecy Index150 and obtained high ranking in various indexes for its overall high competitiveness in innovation and ease of doing business. The US is famous for its vibrant entrepreneurial ecosystem and openness in its investment market. Both New York and San Francisco are home to some of the top US fintech companies. Since 2016, Forbes has been publishing a Fintech 50 list that highlights the private companies that are driving change in the fintech industry. The winning companies from New York and San Francisco already accounted for 38 spots of the 50.151 Both cities benefit from the US government’s Research and Development Tax Credit, which gives a credit of up to 13% on spending on processes and products for all companies, including fintech.

146 Switzerland has consistently achieved top rankings in international indexes for years, making it a destination for more than 850 multinational corporations (MNCs) to set up their regional headquarters. In 2020, it was crowned as No.1 in the World Intellectual Property Organization for the tenth consecutive year,147 securing its reputation as a place for innovation. Top rankings in different global indexes demonstrate its high and sustainable innovation capability, the presence of a highly qualified pool of talent, a stable and efficient economic infrastructure, and a worldfamous education system. It is one of the most effective places to transform innovation investment into results, with 62.75 points (average 20.74 points for surveyed countries) in “Innovation Output” on the Global Innovation Index.148 Apart from having fertile soil for innovation, the high quality of life and working conditions makes the Greater Zurich Area an attractive place for top international talent. It has ranked first in the INSEAD Global Talent Competitiveness Index for a number of years, 149 another reason many MNCs choose to base their regional headquarters in Zurich.

New York is the most populous city in the United States with 19.5 million people. As one of the leading global centers in banking, media, fashion and advertising, it dominates the economy of the country. The city has a well-educated labor force, a large VC investment market, and significant cultural and recreation resources. 10% of the 1,000 largest companies in New York State have set up headquarters in New York City.

New York and San Francisco: Leading Global Financial Centers with Strong Start-up Cultures

159.

San Francisco is the country’s leading technology hub, with the densest concentration of tech companies in the world, with 2,000 tech companies as of 2019.157 At the same time, the city is a principal banking and financial center and houses more than 30 international financial institutions. San Francisco is also known as a startup heaven. The entrepreneurial environment of Silicon Valley is characterized by innovation, collaboration, and risk-taking, all of which have helped create this dynamic startup ecosystem.

Singapore: Customized Government Policy with Transparent Business Regulations and a Streamlined Process As of 2020, Singapore has more than 1,000 fintech companies. The number of completed fintech deals increased 52%, from 71 deals in 2018 to 108 deals in 2019. 158 With over 20 accelerators, startups are well supported with seed investment and mentorship in Singapore. 159 Total value of fintech deals in Singapore jumped to almost S$1.01bn (US$735mn) in the first nine months of 2019, a 69% YoY rise compared with the S$585.38mn (US$435mn) recorded over the same period in 2018.160 Singapore takes the lead in Southeast Asia fintech investments. In 2015-2019, Singapore ranked first in total cumulative fintech investments in the Southeast Asian market, reaching US$2,498mn, which is almost four times more than received by Indonesia who ranked second. 161 FinTech Innovation Lab. | Report: Emerging Fintech Trends (Jul 2019).| https://www.fintechinnovationlab.com/ news/new-york/report-emerging-fintech-trends/ 154. Prolific London. | London overtakes New York as UK FinTech investment hits record high (Sep 2019). | investment-hits-recordwww.prolificlondon.co.uk/marketing-tech-news/tech-news/2019/09/london-overtakes-new-york-uk-fintech-https:// Fintech News. | All 96 Fintech Unicorns: Worth a Combined US$404B (Mar 2021). | https://fintechnews.ch/ fintech/all-96-fintech-unicorns-worth-a-combined-us404b/43748/ 156. Failory. | +50 Unicorn Startups Founded in New York City [2021 List] (Apr 2021). | https://www.failory.com/blog/ unicorn-startups-nyc 157. Jonathan Gruber and Simon Johnson. "Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream." Public Affairs, 2019. 158. The Strait Times. | Fintech investments in Singapore more than double to $1.2 billion in 2019: Accenture (Feb 2020). | than-doubles-to-12-billion-in-2019https://www.straitstimes.com/business/companies-markets/fintech-investments-in-singapore-moreFindexable. | Findexable Global Fintech Rankings 2020 (2019). | https://findexable.com/wp-content/ uploads/2019/12/Findexable_Global-Fintech-Rankings- 2020exSFA.pdf Findexable. | Findexable Global Fintech Rankings 2020 (2019). | https://findexable.com/wp-content/ uploads/2019/12/Findexable_Global-Fintech-Rankings- 2020exSFA.pdf Singapore Fintech Association. | Singapore fintech landscape 2020 and beyond (2020). | and-beyond.pdfoliverwyman.com/content/dam/oliver-wyman/v2/publications/2020/dec/singapore-fintech-landscape-2020-https://www.

153.

155.

161.

Part I: Examination of Seven Fintech Hubs 2017 and 2018, investments in New York fintech companies nearly doubled from around US$1.8bn to more than US$3.4bn.153 In the first eight months of 2019, the city recorded 101 fintech deals at US$1.93bn investment value, ranking third globally after London and San Francisco.154 Currently, there are 650 for-profit fintech companies in New York. As of March 2021, there were 46 fintech unicorns recorded in the US,155 of which 10 are based in New York and include Unqork, Symphony, Payoneer, Trumid and Better.com

160.

[ Exhibit 17 ]

The Singapore government also provides strong support to new businesses. Announced in its Budget 2020, the government provided S$8.3bn (US$6.3bn) to spur business growth and economic transformation, offered a safety net for new companies through absorbing bank loan risk up to 70%, injected S$300mn (US$226mn) funding for deep-tech startups166 and arranged tailored assistance for large and promising companies from the Economic Development Board (EDB) and other agencies. It also launched a pro-business tax system to support long-term economic activities, providing low corporate and income tax rates, and a 100% tax deduction for eligible R&D activities.

162. World Bank Group. | Doing business 2020: Comparing business regulations in 190 economies (2020). | https:// openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf

Note: 1.

163. EY. | Global Fintech Adoption Index 2019 (2019). | Singapore Economic Development Board. | https://www.edb.gov.sg/en/why-singapore/business-friendlyenvironment.html Hong Kong Business. | Hong Kong loses to Singapore as top Asian location for MNC headquarters (Feb 2018). The Business Time. | Budget 2020: Deep-tech startups to get more support under Startup SG Equity (Feb 2020).

| startups-to-get-more-support-underhttps://www.businesstimes.com.sg/government-economy/singapore-budget-2020/budget-2020-deep-techSingapore12,498 Indonesia2654 Philippines273 Thailand162 Vietnam135 Malaysia91

To encourage MNCs and innovative startups to set up business in Singapore, the government established transparent business regulation with a streamlined process. For example, it only takes 15 minutes to register a company online, which will be set up in less than two days, at a cost of S$315 (US$237).

164 Although it currently has no fintechspecific tax incentives, tax incentives exist for more general categories. Singapore has the world’s fastest approval process for an AI patent, which can be done within six months for eligible applications. According to the KPMG Budget 2018/19 report, Singapore is the top location for MNCs to set up regional headquarters in Asia.

165

Dozens of global studies consistently rank Singapore as one of the top places to start a business. Among other Asian countries, Singapore ranked first for innovation, second for easiest location in the world to do business,162 and third on the International Property Rights Index 2020 and the Corruption Perceptions Index 2020. The fintech adoption rate in Singapore leaped from 15% in 2015 to 67% in 2019.163 With the rise of the Southeast Asia market, the Singapore government positioned itself as a base to access to the region and a gateway to go global.

55 Business Environment

| headquartershttps://hongkongbusiness.hk/financial-services/news/hong-kong-loses-singapore-top-asian-location-mnc166.

165.

topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdfhttps://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/ 164.

Source: CB Insights, Oliver Wyman analysis Investments in Grab excluded. Investments in Gojek excluded. : Total Cumulative Fintech Investments in Southeast Asian markets from 2015-19, US$ million

Part Examination of Seven Fintech Hubs

167. Realizing Society 5.0. | https://www.japan.go.jp/abenomics/_userdata/abenomics/pdf/society_5.0.pdf

Based on data from different global indexes, it appears that Shanghai may need to do more to catch up with the other hubs. Being the largest city in China by population, Shanghai has tremendous business opportunities for both the domestic and overseas markets. Since 1992, the Shanghai economy has been achieving double-digit growth nearly every year. It is also the largest center for trade, finance, and technology industries and business activities in China, with trading volumes at the Shanghai Stock Exchange being some of the highest in the world. Today, over 370,000 financial professionals are in Shanghai, 173 and its financial market potential has attracted many MNCs and entrepreneurs from other cities in China to gather in Shanghai. As of July 2019, Shanghai already had over 1,000 multinational headquarters and R&D centers, which is the largest number of all cities in Mainland China.174

Shanghai: Large Domestic Market and Proactive Government to Unlock its Potential

169. Skalex.| Cryptocurrency in Japan: A Brief History. | https://www.skalex.io/crypto-japan/ 170. Nikkei Asia. | Japan's SBI and SMFG to set up digitalized securities exchange (Jan 2021). | com/Business/Markets/Japan-s-SBI-and-SMFG-to-set-up-digitalized-securities-exchangehttps://asia.nikkei.

174. China Briefing. | Shanghai Moves to Attract Foreign Investment, Open Up China’s Financial Sector (Mar 2020). https://www.china-briefing.com/news/shanghai-moves-attract-foreign-investment-open-chinas-financial-sector/|

Tokyo: Leveraging Japan’s Robotics and IoT markets; Long-term Cryptoasset Development Plan Japan is recognized for its innovation and R&D capabilities with the world’s top IP protection, robust robotics development, and strong IoT market. The Japanese government uses its competitive strengths to establish a super-smart society to create growth potential for emerging technology clusters including robotics, AI, IoT, and cybersecurity. Society 5.0 167 is the Japan government’s vision that was proposed in its 5th Science and Technology Basic Plan168 as a future society to aspire to. Compared with other Asian hubs who also have plans for moving towards a smart city, Japan’s progress so far has shown to be the most promising. In addition, Japan has a leading position in the world’s most active crypto exchange market, with 11% of global trading volume for Bitcoin Trade Volume (BTC). As of March 2018, over 3.5 million individuals in Japan were trading cryptocurrencies.169 A blockchainbased stock exchange in Osaka is planned by SBI Holdings and Sumitomo Mitsui Financial Group for 2022. 170 Japan’s leading position in cryptocurrency acceptance, regulation and legalization attracts overseas companies. In 2017, the largest bitcoin company in China – Huobi, launched an office in Tokyo. As of February 2021, there were 27 approved cryptocurrency exchanges operating in Japan, of which 23 were based in Tokyo.171 Tokyo offers some tax incentives to the general industry, which can also benefit fintech firms. In late 2020, the Japanese government proposed 2021 tax reforms172 that include (1) the establishment of tax incentives for investments in digital transformation; (2) revisions on R&D tax credits; and (3) revisions on taxation for foreign investors. These reforms are part of the initiative to promote Japan as a global financial center, and are expected to further enhance Tokyo’s attractiveness to fintech businesses.

171. Financial Services Agency of Japan. | List of licensed (registered) crypto-currency exchange service providers. | https://www.fsa.go.jp/menkyo/menkyoj/kasoutuka.pdf (In Japanese)

172. Liberal Democratic Party. | Reiwa 3rd year tax reform outline (Dec 2020). | https://www.jimin.jp/news/ policy/200955.html (In Japanese) Think China. | Is Shanghai on track to becoming an international financial centre in 2020? (Feb 2020) | https:// www.thinkchina.sg/shanghai-track-becoming-international-financial-centre-2020

168. Japan’s 5th Science and Technology Basic Plan (2016-2020). | 45451715a00666f169a1/1586366153339/Japans%20fem%C3%A5rsplan.pdfhttps://www.tillvaxtanalys.se/download/18.62dd

173.

London London had around 975 fintech companies as of 2020. 178 It has 11 unicorns: Checkout. com, Revolut, Blockchain.com, Wise (formerly known as Transferwise ), 179 Greensill, OakNorth, Monzo, Rapyd, Starling Bank, Zego and PPRO , 180 of which Checkout.com is currently the highest valued fintech unicorn in Europe and fourth globally, with a US$15bn valuation.181 Other famous fintech unicorns include Revolut and Wise, two companies that created innovative products such as prepaid virtual cards and multi-currency accounts, respectively.

Partnership building is a key growth driver for the fintech industry. Partnerships between mature players and new entrants, between fintech and lifestyle industries or between competitors are common business strategies used by fintech companies. 177 Therefore, an extensive, resourceful, and relevant network is another important attribute of a hub’s business environment. The following focuses on the hubs’ local fintech communities and their roles in the global fintech community. The discussion covers: (1) the availability and accessibility of industry associations where fintech companies and startups can find assistance and support and where networking and collaboration begin to form; and (2) large-scale events and conferences that regularly take place to assess the availability of local, regional, and international networks and facilitation of insight exchange. In 2020, due to the pandemic, many events may have been affected, and online participation has been a common solution. The physical attendance figures before 2020 are used as the metric in the following section.

57 Business Environment 175. EY. | Global Fintech Adoption Index 2019 (2019). | topics/banking-and-capital-markets/ey-global-fintech-adoption-index.pdfhttps://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/ 176. KPMG. | 2020 China Leading Fintech 50 (2020). | https://home.kpmg/cn/en/home/campaigns/2021/01/chinafintech-50.html 177. HKUST Business School. | The Fintech Talent Development, Competency, and Manpower Study (June 2020). | https://www.bm.ust.hk/en-us/media-resources/overview/publications/reports/issue:2/ 178. Beauhust. | Top 50 Fintech Startups and Scaleups in the UK 2021 (Jan 2021). | https://www.beauhurst.com/ blog/fintech-startup-companies/ 179. Transferwise Ltd. | World, Meet Wise (Feb 2021). | https://wise.com/gb/blog/world-meet-wise 180. CBINSIGHTS. | The Complete List of Unicorn Companies (As at May 2021). | https://www.cbinsights.com/ research-unicorn-companies 181. CNBC. | Fintech firm Checkout.com crowned Europe’s top unicorn after tripling valuation to $15 billion (May 2021). | valuation.htmlhttps://www.cnbc.com/2021/01/12/fintech-firm-checkoutcom-is-europes-top-unicorn-with-15b-

The Fintech adoption rate in China reached 87%175 in 2019. Shanghai is consistently one of the top three cities with the most number of enterprises in the China Leading Fintech 50. 176 This is an annual list published by KPMG China that selects the top 50 Chinese fintech enterprises based on five core criteria including: (1) technology and data; (2) innovation and transformation; (3) popularization of financial services; (4) capital market recognition; and (5) industry development prospects. In January 2020, the Shanghai municipal government released a five-year fintech hub development plan. Overall, with a proactive policy and government support, as well as a large labor force in finance and huge market potential, it is expected that Shanghai will surpass some of its Asian counterparts soon, and be ranked at the top spots on different global indexes.

Fintech Community and Networking Opportunities

Part I: Examination of Seven Fintech Hubs

The US continues to be a catalyst for global fintech growth, with total investment activity187 of US$75.9bn in 2020.188 The country organizes some of the biggest and most anticipated fintech conferences, providing many opportunities for US companies to attract investors from around the world. Both New York and San Francisco are hotspots for a number of well-known international conferences.

185.

186.

Zurich According to the IFZ FinTech Study 2019, 185 Zurich has the second-largest potential worldwide for entrepreneurship, innovation and fintech, only behind Singapore, but ahead of London, New York, San Francisco, and Hong Kong. Although there are less than ten fintech accelerators and incubators in Zurich, 186 some including the F10, Kickstart Accelerator, Swiss Technology Fund and Venture Kick are connecting their startups to international markets. Zurich does not host many international events, with the most representative industry event being the Swiss Fintech Awards , which is regarded as one of the most significant accolades in the fintech sector. The industry is represented by several independent associations that provide support, networking opportunities, government liaisons, and an international reach for the diverse group of entrepreneurs, startups, investors, corporates, and other stakeholders in the Swiss fintech sector. New York and San Francisco

188.

London is also home to many international fintech conferences, notably many blockchain meetings such as the London Blockchain Week which welcomed more than 3,000 participants in 2019.182 Fintech Week London also had over 2,500 participants in the same year. The city hosted at least 20 other fintech conferences in 2019.183

182. Innovation Matrix. | London Blockchain Week 2019 (Feb 2019). | https://www.innovationmatrix.com/event/ london-blockchain-week-2019 183. Fintechnews Switzerland. | 24 Fintech Events in London to Attend in 2019 (Feb 2019). | https://fintechnews.ch/ london/fintech-events-conferences-london-2019/25354/ 184. Fintech Alliance. | FinTech Alliance Investment Hub. | https://fintech-alliance.com/investment-hub Ankenbrand, T., Dietrich, A., & Bieri, D. (2019). | IFZ FinTech Study 2019: An Overview of Swiss FinTech. | https:// blog.hslu.ch/retailbanking/files/2019/03/IFZ-FinTech-Study-2019_Switzerland.pdf StartupBlink. | Map and Directory of Startup Accelerators in Zurich, Switzerland (2021). | https://www. startupblink.com/accelerators/zurich+switzerland Investment activities include venture capital (VC), private equity (PE) and mergers and acquisitions (M&A). KPMG. | Pulse of Fintech H2’20 (Feb 2021). https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/02/pulse-offintech-h2-2020.pdf

187.

There are two well-organized industry associations stationed in London. Innovate Finance is a London-based, independent association that represents the UK’s global fintech community. It has more than 250 international member companies that span wide ranges of financial services and fintech solutions, from seed funding stage startups, global financial institutions, investors, professional services firms and global fintech hubs. It is also the organizer of London’s flagship fintech events, UK FinTech Week and Innovate Finance Global Summit. In partnership with the Department for International Trade, FinTech Alliance is another association that brings together the fintech community in the UK and connects them with the global fintech ecosystem. Fintech Alliance is the first community-driven platform in the UK’s fintech industry for both fintech startups and investors. Its Fintech Alliance Investment Hub is the only regulated fintech investment hub in the UK.184

59 Business Environment 189. Coindesk. | How We’re Raising the Virtual Bar at Consensus: Distributed (May 2020). | https://www.coindesk. com/consensus-distributed-2020-virtual-conference-explainer 190. CBinsights. | Future of Fintech 2020 (2020). | https://events.cbinsights.com/future-of-fintech 191. Finext Conference USA. | Finext Conference USA (2020). | http://usa.finextcon.com/ 192. Findexable. | Findexable Global Fintech Rankings 2020 (2019). | https://findexable.com/wp-content/ uploads/2019/12/Findexable_Global-Fintech-Rankings- 2020exSFA.pdf 193. Findexable. | Findexable Global Fintech Rankings 2020 (2019). | https://findexable.com/wp-content/ uploads/2019/12/Findexable_Global-Fintech-Rankings- 2020exSFA.pdf 194. CBINSIGHTS. | The Complete List of Unicorn Companies (As at May 2021). | https://www.cbinsights.com/ research-unicorn-companies

Given the volume of fintech companies and fintech activities based in New York and San Francisco, surprisingly neither has organizations or associations that connect the fintech companies together. Fintech startups in New York are largely supported by the FinTech Innovation Lab New York, which was co-founded by the Partnership Fund for the New York City and Accenture in 2010. The Lab is a highly competitive program that helps early-stage tech companies refine and test their solutions and products with support from the world’s leading financial service firms. The Lab has so far created more than 13,000 jobs and raised US$1.4bn in capital. Though not an official industry association, the Lab provides mentorship from premier financial institutions and life-long access to its global fintech ecosystem to its alumni companies. San Francisco has a number of associations in the area that are fintech-related, including the Global Chamber San Francisco, Renaissance Entrepreneurship Center, San Francisco Chamber of Commerce, and San Francisco Women’s Entrepreneurship Fund, but none of them are specifically for the fintech industry.

Around eight fintech accelerators and incubators, including the well-known 500 Startups and Y-Combinator, are available in the city.192 In 2019, fintech investment in San Francisco reached US$3bn across 80 deals.193 The city is also the largest fintech unicorn capital in the world, housing 18 fintech unicorns in the city: Stripe, Plaid Technology, Ripple, Brex, SoFi, Zenefits, Gusto, Blend, Kraken, Tradeshift, Carta, Collective Health, Deel, Figure Technologies, Pilot.com, Upgrade, Qualia and Flutterwave 194 New unicorns are emerging every year, indicating steady growth in San Francisco’s fintech industry.

As “the City that Never Sleeps”, New York is the host of some of the biggest fintech conferences, including LendIt Fintech, Empire Fintech Conference, New York Fintech Week, and Consensus, which is the most prominent fintech event of the city with attendance growth from 500 to 4,700 attendees from 2015 to 2019.189 New York’s range of fintech accelerators is expansive, and spanning all fintech disciplines. Some of the representative ones include Barclays Accelerator, Accenture Fintech Innovation Lab, Citi Innovation Labs, Mastercard Labs, JP Morgan Chase Financial Solutions Lab, and the FinTech Innovation Lab New York San Francisco hosts several international fintech events such as Future of Fintech , 190 Blockchain Expo North America, Finovate Spring Conference, and FiNext Conference & Expo USA,191 which are well attended by top industry leaders numbering in the hundreds.

60 Part I: Examination of Seven Fintech Hubs Singapore Singapore hosts several major global industry events including the most attended Singapore Fintech Festival, which had 60,000-plus participants from over 160 countries in 2020.195 The country’s fintech players are represented by one of the most effective fintech associations in the world – the Singapore Fintech Association which is a cross-industry association that facilitates collaboration of various stakeholders in the country’s fintech ecosystem. It not only works with professional services firms and conducts research studies about the Singapore fintech landscape and talent market, but also shares industry’s opinions with regulators, and forms an extensive international fintech network with other financial associations and government bodies around the world.

195. Singapore FinTech Festival 2020. | https://www.fintechfestival.sg/ 196. Accenture. | Global Fintech Investments Surged in 2018 with Investments in China Taking the Lead, Accenture Analysis Finds; UK Gains Sharply Despite Brexit Doubts (Feb 2019). | finds-uk-gains-sharply-despite-brexit-doubts.htmglobal-fintech-investments-surged-in-2018-with-investments-in-china-taking-the-lead-accenture-analysis-https://newsroom.accenture.com/news/

In terms of accelerators, the MUFG Digital Accelerator helps startups brush up their business plans, others such as Plug and Play Fintech and 500 Kobe Accelerator help fintech startups connect with large financial institutions. In 2018, venture-backed fintech investments in Japan jumped more than fivefold to US$542mn.196 Despite having good exposure to capital investments, Tokyo’s fintech market has lagged behind other cities with no significant growth in the past years. Tokyo is keen on closing the gap with Hong Kong and Singapore to become the leading financial city in Asia, and it is believed that fintech would be a fuel central to this vision. With the advantage of Japan being a global technology leader, both the TMG and industry associations are stepping up the game with harnessing opportunities to bring foreign fintechs and startups into Tokyo.

Tokyo Relatively speaking, Tokyo has fewer fintech events and forums, but hosts two large conferences, FIN/SUM organized by Nikkei and TEAMZ Blockchain Summit The Tokyobased Fintech Association of Japan organizes events and creates networking opportunities for its members regularly, including domestic and overseas meet-ups to provide updates on market trends and latest market insights of the fintech ecosystem. It also serves as a platform for members to exchange opinion with regulators through events such as Meet up with SFA and obtain information through the Fintech Support Desk. Tokyo Fintech is another industry association based in Tokyo, connecting entrepreneurs and startups to form a domestic drive on fintech innovation and development.

202. Shanghai International Group. | Shanghai Financial Technology Industry Alliance was formally established. (May 2020). | https://www.sigchina.com/index.php?m=content&c=index&a=show&catid=50&id=1013 (In Chinese).

The Shanghai Technology Innovation Center (STIC) has selected over 30 accelerators and incubators in Shanghai to facilitate overseas startups development in the city, such as XNode, Chinaccelerator, PwC Fintech Accelerator and more.197 Fintech events held in Shanghai include the Shanghai Fintech International Forum, Fintech Innovation Summit, Inclusion Fintech Conference which attracted up to 30,000 participants,198 and more. In 2019, the trading volume of Shanghai’s financial markets totaled RMB1,934tn (US$298tn), which is almost 8 times the level in 2009. By the end of 2019, the total number of licensed financial institutions in Shanghai had reached 1,646, which is 660 more than that at the end of 2009.199 Shanghai is now home to more than 1,600 financial institutions, of which one-third are from overseas, and over 100,000 fintech-related firms that make up 61.7% of all fintech-related companies in the country. 200 The city is also home to the headquarters of over 50 payment institutions, including Alipay, making it a major powerhouse for China’s payment industry.201 In May 2020, the Shanghai FinTech Industry Alliance was formed with a “8+44” structure,202 with eight government units including the PBOC Shanghai Branch, Shanghai Banking and Insurance Regulatory Bureau, Shanghai Securities Regulatory Bureau and the Shanghai Finance Bureau, and 44 units from the city’s financial sector including financial institutions, fintech enterprises, and research institutes of universities. The Alliance serves as an open platform that integrates fintechrelated production, study, research, and investment for the advancement of the local fintech sector.

197. Kingdom of the Netherlands. | Startup Playbook Shanghai. Incubators, accelerators and co-working spaces. | incubators-accelerators-and-co-working-spaceshttps://www.netherlandsworldwide.nl/countries/china/startup-playbook-shanghai/startup-ecosystem-china/ 198. Business Wire. | Ant Financial Debuts World’s Leading Fintech Conference, to Take Place in Shanghai (Jan 2020). | 199. SHINE. | Shanghai now third in ranking of global financial centers (Sep 2020). https://www.shine.cn/biz/ finance/2009266846/ 200. Sina Tech. | The total number of registered financial technology-related companies in my country is nearly 40 times that of ten years ago (Oct 2020). | https://finance.sina.com.cn/tech/2020-10-26/doc-iiznctkc7671892. shtml (In Chinese). 201. Z/Yen, China Development Institute and Long Finance. | The Global Financial Centres Index 28 (Sep 2020). | https://www.longfinance.net/media/documents/GFCI_28_Full_Report_2020.09.25_v1.1.pdf

61 Business Environment

Shanghai

203. With reference to The Fintech Talent Development, Competence, and Manpower Study by HKUST Business School, cross-disciplinary collaboration and actively building partnership within and beyond the traditional financial services industry would benefit the fintech ecosystem and general business development of fintech sector (p.10). For more details, please visit https://www.bm.ust.hk/en-us/media-resources/overview/ publications/reports/issue:2/ Building Local and International Networks

A vibrant fintech hub is built upon a mutually beneficial and sustainable network of all the industry participants including regulators, financial institutions, startups, their partners and collaborators, and the clients being served. Based on our observations, the most vibrant hubs are those with coordinated support to build local and international networks. To expand fintech uses and increase fintech adoption, fintech companies see the need to collaborate and co-create with each other and also with other industries.203 Networking opportunities with local and international firms are important, for fintech is a team effort where different types of collaboration are needed to facilitate the creation and enhancement of solutions and products on top of the existing financial services infrastructure.

Leading-Fintech-Conference-to-Take-Place-in-Shanghaihttps://www.businesswire.com/news/home/20200115005313/en/Ant-Financial-Debuts-World%E2%80%99s-

San Francisco, California, The United States FiNext Conference & Expo USA https://finextcon.com/ New York City, New York, The United States AI in Finance new-york-2022https://www.re-work.co/events/ai-in-finance-summit-Summit

Dallas, Texas, The United States Pushpay https://pushpay.com/events/Summit

Miami, Florida, The United States Retain Finance https://retailfinanceconnect.wbresearch.com/Connect

62 Part I: Examination of Seven Fintech Hubs Location Conference Santa Monica, California, The United States The Montgomery https://www.montgomerysummit.com/Summit

Austin, Texas, The United States American Banker: Digital bankinghttps://conference.americanbanker.com/digital-Banking

San Francisco, California, The United States Blockchain Expo North https://blockchain-expo.com/northamerica/America

[ Exhibit 18 ] :

San Francisco, California, The United States Finovate Spring https://finovate.com/Conference Paris, France Paris Fintech https://www.parisfintechforum.com/Forum Examples of the Biggest Fintech Conferences

Chicago, Illinois, The United States Mobile Payments https://mobilepaymentconference.com/Conference Chicago, Illinois, The United States The US Fintech https://www.fintechsymposium.com/Symposium Long Beach, California, The United States https://finconexpo.com/fincon2022/FinCon Nevada, Las Vegas, The United States Money https://www.money2020.com/20/20 Multiple locations in The United States SoFi https://www.sofi.com/experiences/Experiences

San Francisco, California, The United States Future of https://events.cbinsights.com/future-of-fintechFintech

New York City, New York, The United States Empire Fintech conference/https://empirestartups.com/events/fintech-Conference New York City, New York, The United States https://events.coindesk.com/consensus2022Consensus New York City, New York, The United States LendIt https://www.lendit.com/usa/2022Fintech New York City, New York, The United States New York Fintech fintech-week/https://empirestartups.com/events/new-york-Week

London, The United Kingdom London Blockchain https://www.blockchainweek.com/?promo=FTSWWeek

London, The United Kingdom UK FinTech Week and The Innovate Finance Global https://www.innovatefinance.com/ukfintechweek/Summit

BusinessLocationEnvironment Conference

Manila, Philippines Seamless https://seamlesssummit.com/Summit

London, The United Kingdom https://www.fintechtalents.com/FinTECHTalents

London, The United Kingdom Blockchain for Business https://tmt.knect365.com/blockchain-business-summit/Summit

Shanghai, China Shanghai Fintech International technology-international-forum.htmlservices/articles/the-2nd-shanghai-financial-https://www2.deloitte.com/cn/en/pages/financial-Forum

Shanghai, China Inclusion Fintech https://www.inclusionconf.com/enConference

Berlin, Germany Cognitive Finance finance/https://thefintechtimes.com/event/cognitive-Automation

London, The United Kingdom Digital bankinghttps://conference.americanbanker.com/digital-Banking

Berlin, Germany Finovate https://finovate.com/Europe

Singapore Singapore FinTech https://www.fintechfestival.sg/Festival

London, The United Kingdom Swell by https://swell.ripple.com/Ripple

Source: Bizzabo.

London, The United Kingdom Banking of the https://bankingtransformationsummit.com/Future London, The United Kingdom Fintech World https://fintechconferences.com/Forum

Lisbon, Portugal https://websummit.com/themes/commerceMoneyConf Tel Aviv, Israel FinTech https://www.fintechjunction.com/Junction

| The 30 biggest fintech conferences of 2020 (Feb 2020). (cout.) [ Exhibit 18 ] : Examples of the Biggest Fintech Conferences

Beijing, China China Fintech Research SHIFThttps://stripe.com/sessions/2021http://conference.fter50.org.cn/ConferencebyZenefits

204. HKEX. | Hong Kong and Mainland Market Highlights (As of May 2021). | Kong-and-Mainland-Market-Highlights?sc_lang=en#select3=0&select2=3&select1=0https://www.hkex.com.hk/Mutual-Market/Stock-Connect/Statistics/Hong205. KPMG. | VC investment in fintech more than doubles in second half of 2020 – expected to remain strong into 2021 (Feb 2021). | https://home.kpmg/xx/ en/home/media/press-releases/2021/02/vc-investment-in-fintech-more-than-doubles-in-second-half-of-2020.html

206. China Daily. | Hong Kong was 2nd largest IPO market in 2020 (Jan 2021). | https://www.chinadailyhk.com/article/154844#Hong-Kong-was-2nd-largestIPO-market-in-2020

Hong Kong is attractive to businesses around the world for its business-friendly tax system, strong capital market and funding landscape, well-established banking industry that embraces fintech, vibrant fintech community with partnership platforms and global network opportunities, as well as being part of the Greater Bay Area (GBA) that offers many opportunities. Without foreign exchange controls or restrictions on capital inflows and outflows, Hong Kong is one of the freest markets for fintech companies to develop and expand their business across borders. With a highly competitive tax system and no global taxation, estate duty, withholding tax on investments, wine duty, capital gain tax and sales tax, Hong Kong is a very attractive tax environment for doing business. There are more than 2,100 listed companies in Hong Kong.204 As global fintech investment reached the third highest annual total in history to US$105bn,205 the year 2020 was also a fruitful year for Hong Kong with its fundraising activities. According to the data from the Hong Kong Exchanges and Clearing Limited (HKEX), its IPOs raised US$51.28bn equity fund in 2020, making Hong Kong the second largest IPO market in the world.206 Although the number of fintech companies and fintech deals completed in Hong Kong was less than that in Singapore, 207 Hong Kong is proven to have more capability to groom HONG KONG Business Environment Insufficient Sufficient fintech unicorns compared to Singapore. Three of the eight unicorns in Hong Kong are fintech startups, namely Airwallex, a cross-border payment service provider; TNG, a digital wallet company; and WeLab, an online Peer-to-Peer lending platform.

207. According to Accenture, Singapore had over 1,100 fintech companies and completed 108 deals with a total investment of US$862mn. For details, please visit https://www.straitstimes.com/business/companies-markets/fintech-investments-in-singapore-more-than-doubles-to-12-billion-in-2019 Hong Kong Academy of Finance. | FINTECH: Adoption and Innovation in the Hong Kong Banking Industry (May 2020). | https://www.aof.org.hk/docs/ default-source/hkimr/applied-research-report/fintechrep.pdf InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf InvestHK, Commerce and Economic Development Bureau, The HKSAR Government. | Legislative Council Panel on Commerce and Industry: Promotion on Inward Investment (Apr 2020). | https://www.legco.gov.hk/yr19-20/english/panels/ci/papers/ci20200421cb1-535-5-e.pdf

209.

210.

As a well-established financial center and a top global city, Hong Kong aspires to provide a conducive environment for both the traditional finance and the fintech sectors to innovate, digitize and collaborate. The Hong Kong banking industry has widely adopted a range of fintech solutions, such as mobile banking, Open APIs, machine learning, predictive analytics, and cloud computing. The banks’ fintech strategies are major influencers of the fintech development in Hong Kong. The Hong Kong banking sector sees fintech development as an opportunity rather than a threat to its business operation,208 and are particularly optimistic about the great potential of risk management services and plan to increase investment in AI in the next five years. Regtech and blockchain are the two fastest growing fintech clusters in 2019, followed by insurtech, wealthtech and digital assets.209 In recent years, banks and financial regulators have been exploring the further use of AI to improve regtech and supervisory capacity (suptech) to increase efficiency and Theaccuracy.fintech community of Hong Kong, which embraces partnership building and co-creation, complements the city’s attractive business environment. The Hong Kong fintech industry covers a broad spectrum of areas, such as payment, wealth management, regtech, insurtech, cryptoassets, blockchain, AI and big data, and the ecosystem is comprehensive where all stakeholders, including financial institutions, regulators, academia, investors, and entrepreneurs, are actively engaged with each other. Fintech companies and practitioners in Hong Hong Kong as a Global Fintech Hub: Business Environment

64 Part I: Examination of Seven Fintech Hubs

208.

Hong Kong also hosts other well-attended international conferences and events, such as the Asian Financial Forum (AFF) and Hong Kong Blockchain Week. In addition to local and international opportunities, Hong Kong is also the perfect springboard for both foreign companies to enter the Mainland China market and China companies to go global.

218. HKTDC Research. | Hong Kong Start-Up Survey: Ecosystem Overview (Feb 2021). | https://research.hktdc.com/en/article/NjYwMTUyNDYy

As one of the four core cities to serve as the engines for development in the Greater Bay Area,211 which is descirbed as “one of the most unique, intricate and prosperous regions in the world”, 212 there are ample opportunities for the Hong Kong fintech industry – if fully utilized–to develop and expand much faster in the global fintech race.

65 Business Environment Kong are well connected and supported by multiple public and private organizations, where they can find all kinds of fintech-related information, funding support, events and seminars to facilitate knowledge exchange, and networking opportunities with other like-minded fintech enthusiasts. The industry has been demonstrating strong collaborative efforts in conducting fintech research, nurturing fintech talent, and promoting Hong Kong fintech to the world. Since 2016, Hong Kong has established one of the largest engagement platforms for the global fintech community, the Hong Kong Fintech Week, which brings together the brightest minds and the best fintech companies, entrepreneurs and visionaries from around the world. The event provides a platform for the fintech community to build connections, collaborate and initiate partnerships through satellite events, inspiring debates and panel discussion covering the latest and hottest topics of fintech. The Hong Kong Fintech Week has become the flagship event of the international fintech community and has successfully catalyzed Hong Kong’s global branding as a fintech hub. It also demonstrates the government’s commitment to sustainable development in the fintech field. Its organizer, InvestHK, plays an important role in connecting the local and overseas fintech communities. In 2019 alone, it sponsored 34 fintech events in Europe, the US and the Mainland China, and conducted visits and roadshows in London, New York, Paris, San Francisco, Shanghai, Shenzhen, Singapore, Tokyo, Zurich and more to promote the Hong Kong fintech ecosystem and fintech companies.210

211. Bayarea.gov.hk. | Development Focus (2021). | https://www.bayarea.gov.hk/en/focus/bayarea-cities.html 212. Fintech

217. InvestHK. | Hong Kong: from startups to regional headquarters – Hong Kong Vibrant International Business Community (2019). | https://www.investhk. gov.hk/sites/default/files/RHQ%20and%20Startups%20Surveys%202019_entc.pdf

216. Census and Statistic Department, the HKSAR Government. | Table 133: Number of Regional Headquarters in Hong Kong by Country/Territory where the Parent Company was Located (Nov 2020). | https://www.censtatd.gov.hk/en/web_table.html?id=133

214. Hong Kong Monetary Authority. | Hong Kong as an International Financial Centre (2021). | financial-centre/hong-kong-as-an-international-financial-centre/#hong_kong_financial_service_sector_at_a_glancehttps://www.hkma.gov.hk/eng/key-functions/international215. InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf

In seven of the past 11 years, Hong Kong ranked as the most resilient economy in Asia 213 and the world’s top IPO venue.214 Among the 100 largest banks in the world, more than 70 have presence in Hong Kong, and over 29 multinational banks have set their regional headquarters in the city. Together with eight virtual banks, four virtual insurance companies, more than 160 insurers and over 800 wealth and asset managers, 215 Hong Kong has a sophisticated and mature banking industry, a robust fintech community and a talented assembly of financial services professionals for fostering fintech innovation and development. In 2020, the total number of regional headquarters in Hong Kong reached 1,500.216 More than 9,000 companies whose parent companies are outside Hong Kong, most of which are from Mainland China, Japan, Singapore, the US and the UK.217 In 2020, there were more than 3,300 startups in Hong Kong, accounting for over 10,000 jobs in the market and fintech is one of the emerging startup sectors. 218 Hong Kong has been performing well on various global rankings and indexes, and certainly not shy from some of the strongest financial cities including Singapore, Japan, China, and the UK. However, there is room for improvement in terms of facilitating innovation and the overall startup ecosystem for Hong Kong to get ahead of other competitive cities in the region, such as Singapore, Beijing, and Shanghai. In general, Hong Kong is facing fierce competition with other up-and-rising technology hubs in the region. A lag of scaling experience in technology has caused it to lag behind its Asian counterparts. News Hong Kong. | A Deeper Look into The Greater Bay Area, China’s Answer to Silicon Valley (May 2019). | https://fintechnews.hk/9277/ fintechchina/greater-bay-area-fintech/ InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf

213.

219. TechSci Research. | Global Fintech Market By Technology (API; AI; Blockchain; Distributed Computing, Others), By Service (Payment; Fund Transfer; Personal Finance; Loans; Insurance; Others), By Application (Banking; Insurance; Securities & Others), By Region, Competition, Forecast & Opportunities, 2025 (Dec 2020). | https:// www.techsciresearch.com/report/fintech-market/4235.html

To keep up with the growing demand for talent, a global fintech hub will need to have a stable and sustainable supply of skilled personnel by sourcing from the existing workforce, attracting foreign workers who are already equipped with the required skills, as well as nurturing new talent from their local education system. Governments must examine the following to formulate an effective talent policy:

Policymakers should also look into immigration and employment laws that facilitate relocation of foreign workers to the city, and provide incentives to financial institutions and startups to recruit professionals from other regions or countries.

220. Department for International Trade, HM Treasury and Innovate Finance. | UK Fintech – State of the Nation. (Apr 2019). | file/801277/UK-fintech-state-of-the-nation.pdfhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/

2. Hiring trends for the local and global fintech industry;

How to Keep Up with Current and Future Demand

With a global market size valued at US$5,504bn in 2019 and an expected growth at CAGR 23.58% in 2021-25,219 fintech hubs around the world know the importance of attracting global talent. The World Economic Forum has revealed that emerging fintech talent roles such as data analysts, AI and machine learning specialists, system engineers and developers – which accounted for 15% of the global financial services workforce – are expected to represent 29% of the workforce by 2022.220

66 Part I: Examination of Seven Fintech Hubs IV. TALENT

1. The number of existing qualified people in the sector;

3. Effective measures to attract foreign talent;

4. The number and type of existing city or country programs to develop talent;

5. The challenges that educational institutions have in developing quality training programs and schemes to reskill existing workers; and 6. How to best cultivate future generations of talent

1. Funding support to long-term policy instruments; 2. Measures to attract foreign talent; 3. Programs for upskilling existing workers; and 4. Changes to the current lower and higher educational curriculums.

67 Talent London: Cultivating Young Talent, but Lacks Reskill and Upskill Training for Existing Workforce

The UK is ranked 21st in the Global Social Mobility Index 2020, 221 which is lower than Switzerland, Japan, and Singapore, ranked 7th, 15th and 20th, respectively. Its relatively low global social mobility will cost the UK economy £140bn (US$198bn) a year. 222 42% of workers in the UK fintech sector are from overseas. 223 London had more than 44,000 fintech workers in 2017,224 and slightly less than 50% of the UK’s fintech workers are from other countries,225 implying that the UK relies heavily on international talent.

221. World Economic Forum. | The Global Social Mobility Report 2020-Equality, Opportunity and a New Economic Imperative (Jan 2020). http://www3.weforum.org/docs/Global_Social_Mobility_Report.pdf

222.World Economic Forum. | The Global Social Mobility Report 2020-Equality, Opportunity and a New Economic Imperative (Jan 2020). | http://www3.weforum.org/docs/Global_Social_Mobility_Report.pdf 223.Department for International Trade, HM Treasury and Innovate Finance. | UK Fintech – State of the Nation. (Apr 2019). | file/801277/UK-fintech-state-of-the-nation.pdfhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ 224.Mayor of London. | London's fintech scheme at a glance (2017). | https://www.thepower50.com/wp-content/ uploads/2018/04/london-fintech-scene-2017-2.pdf 225.Innovate Finance. | Supporting UK FinTech: Accessing a Global Talent Pool (2018). | https://www.innovatefinance. com/supportingukfintech/ 226.Edmans Co. | UK Visas After Brexit - Main Changes to Immigration Routes Post Brexit (2020). | https://edmansco. com/uk-visas-after-brexit/ 227.QS Top Universities. | QS World University Ranking 2021. | https://www.topuniversities.com/university-rankings/ world-university-rankings/2021 228.QS Top Universities. | World University Rankings - Full Time MBA: Global. | https://www.topuniversities.com/ university-rankings/mba-rankings/global/2021 229.HM Treasury. | Kalifa Review of UK Fintech (Jul 2020). | uploads/system/uploads/attachment_data/file/978396/KalifaReviewofUKFintech01.pdfhttps://assets.publishing.service.gov.uk/government/ 230.City of London. | The Global City. Our global offer to business: London and the UK’s competitive strengths in a changing world. | https://www.theglobalcity.uk/PositiveWebsite/media/Research-reports/CoL-Our-global-offerto-business.pdf 231.CBI. | Learning for life (Oct 2020). | https://www.cbi.org.uk/media/5723/learning-for-life-report.pdf 232.Innovate Finance. | Supporting UK FinTech: Accessing a Global Talent Pool (2018). | https://www.innovatefinance. com/supportingukfintech/

There is a rich pool of fintech talent in the UK, which is supported by its world-class university system. In 2021, 17 UK universities are featured in the global top 100.227 The UK is also home to 25 of the world's top MBA programs 228 and around 19 universities across the country are offering a Master’s degree program in fintech. Financial institutions and fintech companies have access to a vast pool of graduates of fintech-related majors. Due to the pandemic, it is estimated that around 700,000 graduates in the UK are facing an extremely difficult job market.229 Nearly 40% of graduates major in business, information technology, and mathematics,230 and could be a source of skilled entry-level talent for the

Thesector.generation of new talent graduating in the next few years could possibly make up for the loss of foreign talent following Brexit, but it will take time for the fresh graduates to take up roles beyond entry-level jobs. Meanwhile, there is an urgent need to retain and upskill existing workers, and reskill the current workforce to meet the needs of the UK’s fintech sector. It is estimated that overall, over 30 million people, which is 90% of the UK workforce, will need to be reskilled by 2030, and the urgency has been intensified by the COVID-19 pandemic.231 For the fintech sector, it is expected that UK fintech firms will grow from 1,600 to 3,000 from 2018 to 2030, and the number of fintech workers employed would grow from 76,500 in 2018 to more than 100,000 in 2030.232

Following Brexit, EU nationals will be treated as same as non-EU nationals in terms of visa applications, and thus the ease of hiring EU talent will be gone.226

68 Part I: Examination of Seven Fintech Hubs Singapore: Encouraging Local Fintech Development While Restricting Foreign Talent

237.

236 The Singapore government emphasizes the importance of establishing a local core workforce to help Singaporeans become an integral part of the fintech revolution. It also subsidizes up to 70% to 90% of the course fees to encourage local talent to receive fintech training.

According to the FinTech Talent Survey 2020 jointly conducted by the Fintech Association of Singapore and PwC Singapore, fintech companies in Singapore are shifting towards hiring local talent.237 The Hiring in Fintech survey by Michael Page indicated that 63% of surveyed Singapore fintech employers prefer domestic fintech talent.238 The preference in hiring locally could possibly be influenced by the increased availability of local talent with new abilities due to Singapore’s upskilling initiatives and also the increased challenges in recruiting foreign fintech talent in the post-COVID environment.

236.

238.

The fintech talent supply in Singapore is not meeting its demand. In 2019, a survey from the FinTech Employment report showed 94% of respondents agreed that Singapore was facing a major shortage of fintech talent.233 Fintech programs such as those organized by Nanyang Technological University (NTU) and the National University of Singapore (NUS) are estimated to produce 400 graduates each year, which is far from the target set by the government to provide 1,000 fintech graduates per year. The shortfall of roughly 600 people may need to be supplied from overseas.234 At the same time, the Singapore government appears to be tightening its immigration policy, which may increase the difficulty in attracting foreign fintech talent. In March 2020, the Ministry of Manpower increased the minimum qualifying salary for new applicants of the Employment Pass to encourage Singapore businesses to hire more local employees in the post-pandemic Toeconomy.235ensurea sufficient local supply of fintech talent, Singapore’s initiatives focus on the education of future talent, and to upskill and reskill the existing workforce. The MAS signed agreements with five polytechnics to incorporate tech skillsets into their curricula and to set up the Asian Institute of Digital Finance (AIDF) with the National Research Foundation (NRF) and National University of Singapore (NUS) to spearhead fintech education and research. To upskill the existing workforce to facilitate lateral transfers and equip them with skills that match industry needs, several tech and coding academies have been built as part of the Smart Nation Initiatives.

233. Michaelpage. | Singapore – Hiring in fintech, survey and dialogue.| michaelpage.com.sg/files/legacy/16785-sg_fintech_brochure_mp.v6_0.pdfhttps://www.michaelpage.com.sg/sites/ 234. Bloomberg. | Singapore Has Fintech Dreams, But It's Short on Tech Talent (May 2018). | com/news/articles/2018-05-29/singapore-s-fintech-ambitions-bump-up-against-immigration-curbshttps://www.bloomberg. 235. ASEAN Briefing. | Singapore's Ministry of Manpower Revises Rules on Hiring Foreign Employees (May 2020). | Pass%20(EP).employees/#:~:text=On%20March%203%2C%202020%2C%20Singapore's,the%20Employment%20https://www.aseanbriefing.com/news/singapores-ministry-manpower-revises-rules-hiring-foreignSmart Nation Singapore. | Initiatives. | https://www.smartnation.gov.sg/what-is-smart-nation/initiatives PwC, Banking and Financial Services Union and Singapore Fintech Association. | Seizing opportunities for growth FinTech Talent Survey 2020 (2020). | opportunities-for-growth-fintech-talent-survey.pdfhttps://www.pwc.com/sg/en/financial-services/assets/seizingMichaelpage. | Singapore – Hiring in fintech, survey and dialogue. | michaelpage.com.sg/files/legacy/16785-sg_fintech_brochure_mp.v6_0.pdfhttps://www.michaelpage.com.sg/sites/

New York and San Francisco: Overcoming Tech Talent Shortage Across the US

The COVID-19 situation has unexpectedly created more opportunities for fintech talent development. In May 2020, in response to over 100,000 livelihoods affected by the national lockdown rule, the government launched the SGUnited Skills Programme , 239 which provides reskilling training and job support in many areas related to the fintech sector, such as cyber security, data analysis, and digital literacy. Other programs such as the Professional Conversion Programme240 and the FinTech Talent Programme241 provide university training, internships, and mentoring in fintech-related areas, as a new pipeline of future fintech talent for Singapore.

ny.us/files/reports/osdc/pdf/report-4-2018.pdf 244.

The US financial and fintech sector has been struggling to meet the demand for new tech labor, and seeing a widening skills gap in areas such as AI and cybersecurity. The tech talent shortage has exacerbated in recent years, especially post-COVID-19. The acceleration of AI and job automation has not reduced the need for fintech workers. Instead, the trend has led to a shift for higher demand for higher-level skills and new roles such as data scientists and cybersecurity and cloud computing engineers.

245. The White House. | TechHire Initiative. | https://obamawhitehouse.archives.gov/issues/technology/techhire 246. Bartels, A., Meneer, N., Guarini, M. & Danilow, A. | 2018 US Tech Talent Hotspots: Tap New Metro Markets To Get The Tech Talent You Need At A Cost You Can Afford (Nov 2018). | content=Bartels_145715#18+US+Tech+Talent+Hotspots/-/E-RES145715?utm_source=blog&utm_campaign=research_social&utm_https://www.forrester.com/report/20 247. Savills. | Tech Cities in Motion (Feb 2019). | https://www.savills.co.uk/research_articles/229130/274942-0

Over 80% of financial institutions and fintech companies have plans to increase the number of fintech roles and around one-third of the companies find it “extremely challenging” to find candidates with the necessary skills.242 The New York State Comptroller estimated in its September 2017 publication The Technology Sector in New York City243 that tech jobs comprised about 11% of the entire securities industry. As of the third quarter of 2017, more than 3,300 fintech companies were identified, of which 40% were focused on banking and capital markets.

244 Business leaders from the local technology sector have expressed their concern with the talent shortage. In particular, fintech companies are struggling to hire for computer programming and tech engineering positions. In response to the national tech talent shortage, the US federal government launched the TechHire245 initiative in 2015 to build new tech talent pipelines through innovative training and placement models by local communities and employers across the country. Traditionally, tech companies are concentrated in the Silicon Valley, but as of November 2018, New York has already surpassed the San Francisco Bay Area in terms of having the largest tech talent market in the US, with 333,000 tech workers in New York over San Francisco Bay Area’s tech talent pool of 310,000. 246 New York was also recognized as the world global technology leader, again surpassing San Francisco, in the UK’s Savills Survey247 in 2019. However, just after one year San Francisco has reclaimed its crown for

243.

239. Social Service Institute. | SGUnited Skills Programme. | https://www.ssi.gov.sg/training/sgus/ 240. Workforce Singapore. | Professional Conversion Programme (PCP) for Individuals. | programmes-and-initiatives/professional-conversion-programmes-individuals.htmlhttps://www.wsg.gov.sg/ 241. Singapore Fintech Association. | FinTech Talent Programme. | https://singaporefintech.org/fintech-talent/ 242. Insart Fintech Engineering. | Fintech Talent Shortage: Risk of Inaction 2020.| https://www.insart.com/wpcontent/uploads/Fintech_Talent_Shortage_Report.pdf The New York State Comptroller. | The Technology Sector in New York City (Sep 2017). | https://www.osc.state. U.S Department of Treasury. | A Financial System That Creates Economic Opportunities Nonbank Financials, Fintech, and Innovation (Jul 2018). | that-Creates-Economic-Opportunities---Nonbank-Financi....pdfhttps://home.treasury.gov/sites/default/files/2018-07/A-Financial-System-

69 Talent

The Government of New York City is also active in nurturing tech talent, with a focus on having local businesses hire local talent. The city started the NYC Tech Talent Pipeline program 252 in 2014, engaging the industry and higher education institutions to equip students with the right skills for careers in the technology sector, and connects talent and local businesses for jobs after the training. One example of training programs is the Tech Talent Pipeline Residency,253 a three-month program jointly offered by The City University of New York (CUNY) and The New York Code and Design Academy to place computer science students in emerging tech roles of local businesses. Another example is the CUNY Tech Prep,254 a year-long professional development program teaching in-demand tech skills to industry practitioners in the computer science field. The government recognizes the growing significance and the emergency of nurturing local talent for New York City. In 2011, the city set out to build a US$2bn graduate school of applied sciences with Cornell University and Technion-Israel Institute of Technology: the Technion-Cornell Innovation Institute. Aside from conducting research, collaborating with tech companies and organizations, launching their own startups, and offering seven Master’s programs, the campus also has a dedicated K-12 initiative to bring tech education into local schools. The Technion-Cornell campus is one of three projects of the Applied Science NYC255 program with a target to address the technology talent shortage in New York City and to expand talent capacity within the applied sciences and technology sector, including fintech.

70 Part I: Examination of Seven Fintech Hubs having the largest tech talent pool in the US, with approximately 379,000 people in 2020, followed by New York City at around 268,000. San Francisco is also the top-ranked tech market in the US, having the highest annual average wage for tech talent at more than TheUS$136,000.248overallSilicon Valley’s fintech talent pool is larger than that of the UK’s.249 Apart from the robust technology community in the Silicon Valley, San Francisco attracts high quality fintech talent due to its close proximity to internationally renowned post-secondary education institutions.

The University of California, Berkeley’s MBA program offers multiple fintech-focused courses, and Stanford University has a partnership program with the StartX Accelerator to support entrepreneurs through tailored education programs and funding support. At the state level, the California government initiated a STEM Task Force250 to improve teaching and access to STEM-related courses for primary and high school students, with the aim to better equip the next generation for the digital era. Having access to graduates with a tech-related degree might not be enough to satisfy the industry’s need for fintech skills, as technology is changing so rapidly that university programs may not be able to keep up. Thus, universities and the industry are partnering up to drive the momentum. For example, the Plug and Play Tech Center, the world’s largest innovation platform headquartered in Silicon Valley, has launched an elite executive education program called University 165 , 251 to collaborate with innovation experts, top-tier universities and industry leaders.

254

248. CBRE. | 2020 Tech Talent Analyzer. | https://mapping.cbre.com/maps/Scoring-Tech-Talent-2020/ 249. Hot Topics. | The continuing increase of fintech startup investment in Silicon Valley (2020). | https://www. hottopics.ht/26441/the-rise-of-fintech-startup-investment-in- san-francisco/ 250. California, Department of Education. | STEM Task Force. | https://www.cde.ca.gov/eo/in/stemtf.asp 251. Plug and Play. | University 165. | https://www.plugandplaytechcenter.com/university-165/ 252. NYC Talent Pipeline. | https://www.techtalentpipeline.nyc/ 253. The NYC Tech Talent Pipeline. | https://nycda.com/ttp/index.html CUNY Tech Prep. | https://cunytechprep.nyc/ 255 NYC EDU. | Applied Sciences NYC. | https://edc.nyc/project/applied-sciences-nyc

The University of Tokyo Kyoto University Osaka University Tohuku University Kyushu University University of Tsukuba Nagoya University Keio University Waseda University Tokyo Institute of Technology

71 Talent

256. The White House. | Fact Sheet: President Biden Sends Immigration Bill to Congress as Part of His Commitment to Modernize our Immigration System (Jan 2021). | commitment-to-modernize-our-immigration-system/releases/2021/01/20/fact-sheet-president-biden-sends-immigration-bill-to-congress-as-part-of-his-https://www.whitehouse.gov/briefing-room/statements-

258. Except University of Tokyo, Kyoto University and Osaka University also contributed to groom university-based startups. The three universities established 268, 191, and 141 startups in the fiscal year 2019 respectively. For details, please visit Statista. Number of university-based startups in Japan in fiscal year 2019, by major university (2021). | https://www.statista.com/statistics/895274/japan-university-based-startup-number-bymajor-university/

While both New York and San Francisco have easy access to talent from across the country, the US currently faces uncertainty about its immigration policy. Although the Whitehouse released an Immigration Bill Fact Sheet on 20 January 2021,256 as of the time this report is being prepared, it remains to be seen if the bill will be passed by Congress or further revised.

257. Bloomberg. | Japan Ranked Last Choice in Asia for Top Foreign Talent (Nov 2017). | bloombergquint.com/global-economics/japan-ranked-last-choice-in-asia-for-top-foreign-talenthttps://www.

Tokyo has become the world’s financial center for virtual currency, having attracted many foreign companies to make it the designated home for operations in the cryptocurrency space. With both foreign investment and regulations in place for a strong cryptocurrency industry, fintech companies are struggling to find talent. Traditionally not a destination for entrepreneurship with relatively few startups compared with the other fintech hubs, Japan severely lacked blockchain experts in the early 2010’s. By 2016, Japan was facing a growing shortage of IT workers skilled in big data, AI, and IoT. As reported by the Japanese economy ministry, the country was expecting a shortfall of nearly 200,000 information security workers.257

191 114117121141 75858594 Number0 of50Startups100 150 200 250 300 Source: Statista, 2021 [ Exhibit 19 ] : Number of University-based Startups in Japan in Fiscal Year 2019, by Major University

268

Tokyo: Lacking Homegrown Tech Talent, Challenged to Attract Foreign Talent

Over the last decade, a new breed of young entrepreneurs started to emerge. Many Japanese startups were born at elite universities in Japan. In 2019, the University of Tokyo alone groomed 268 startups.258 As established companies start to view startups as potential partners in tech to help their core business, large Japanese banks have started partnering with startups to find talent.

According to a survey of 300 companies released in November 2020 by Robert Walters

China’s rapid development in fintech and fast-pace innovation widened its talent gap. In 2019, the fintech talent shortage in China was estimated to be more than 1.5 million.262 According to the China Fintech Employment 2018 Report, over 90% of fintech companies in China agreed that the industry was facing an acute shortage of professional fintech talent.263 The survey also revealed a unique phenomenon that 60% of fintech employers in China preferred domestic talent and 39% prefer offshore Chinese returnees. Unlike other fintech hubs, hiring from overseas may not be the preference for Chinese fintech companies, and this mentality makes fintech talent recruitment even more challenging.

In 2020, the Japanese Government looked into attracting foreign finance talent from Hong Kong.260 However, with comparatively lower compensation than other countries such as the US and the UK, and traditional Japanese employment customs such as seniority-based salary structures, Japan has not been an attractive destination for foreign workers. According to the 2020 IMD World Talent Ranking,261 Japan ranked 38 in terms of its appeal to attract highly skilled foreign workers, while Hong Kong ranked 14 out of 63 nations covered.

With the aspiration to become Asia’s top financial hub and the world’s financial center for virtual currency, a lack of homegrown talent leaves Tokyo with no choice but to consider foreign workers with a strong knowledge in blockchain and other technologies.

Part I: Examination of Seven Fintech Hubs

Japan, the country is experiencing a serious skills mismatch,259 with 85% of companies in tech industries being concerned about the future talent shortage. The top two hiring challenges are lack of industry experience, and lack of technical qualifications. Faced with an aging population and low female participation in the workforce, Japan’s shortage of homegrown talent is already scarce. The Japanese fintech industry is further challenged by the country’s gaming industry that attracts many domestic IT engineers and programmers. The Japanese culture and political system that favors big corporates, adds another layer of difficulties for new firms and startups to attract young talent.

Shanghai: Nurturing Local Talent through Government Initiatives

In announcing various incentives to attract fintech companies and talent to Shanghai, the municipal is facing keen competition with Hangzhou, which is also aiming to establish itself as a global fintech center by 2030.264 Shanghai grooms fintech unicorns including Lufax and Ping An OneConnect, but Hangzhou is also home to tech giants such as Alibaba and Ant Financial. The Shanghai municipal government has set a five-year plan for fintech research and innovation, introducing a full spectrum of incentives and 259. Robert Walters. | 80% of companies concerned about the talent shortage within their industry; 48% of tech companies “very concerned.” 82% of tech employees confident of future opportunities, but only 57% among translators and office workers (Nov 2020). | country/japan/files/Others/2020/salarysurvey-1126-en.pdfhttps://www.robertwalters.co.jp/content/dam/robert-walters/ 260. The Standard.| Tokyo plans to hang out welcome sign for HK finance talent (Jul 2020). | finance-talentthestandard.com.hk/breaking-news/section/4/150219/Tokyo-plans-to-hang-out-welcome-sign-for-HK-https://www. 261. IMD World Competitive Centre. | The IMD World Talent Ranking 2020 | https://www.imd.org/wcc/worldcompetitiveness-center-rankings/world-talent-ranking-2020/ 262. China Banking News. | China Suffers from Shortage of Fintech Talent: Former Head of Sovereign Wealth Fund (Sep 2019). | tu-guangshao/https://www.chinabankingnews.com/2019/09/18/china-suffers-from-shortage-of-fintech-talent263. PageGroup China. | China: Hiring and Fintech, Survey and Dialogue. | michaelpage.com.cn/files/Michael_Page_China_Fintech_Employment_2018_Report_EN.pdfhttps://www.michaelpage.com.cn/sites/ 264. Xinhua Net. | Hangzhou to become int'l fintech center by 2030 (May 2019). | http://www.xinhuanet.com/ english/2019-05/31/c_138106466.htm

As part of the collaboration, the Shanghai FinTech Industry Alliance (SFIA) signed an MoU with the Singapore FinTech Association (SFA) on fintech talent exchange and the development of fintech platforms.265 To enrich the domestic fintech talent pool, the Shanghai municipal government established the Shanghai Advanced Institute of Finance (SAIF)266 at the Shanghai Jiao Tong University (in 2009). Alongside the SAIF, the China Academy of Financial Research (CAFR) 267 has established a cutting-edge financial research platform that focuses on policy and research development, and works closely with China’s government bodies to support financial reform and market development. Based in Shanghai, Fudan University’s Fudan International School of Finance (FISF)268 was established to focus on professional financial talent education and financial research. It received the largest single donation to the university at RMB1bn (US$15mn) to build a world-class facility and attract global experts and talent.269

73 Talent 265. Pinsent Masons. | Singapore and Shanghai collaborate in financial services and innovation (Dec 2020). | innovationwww.pinsentmasons.com/out-law/news/singapore-and-shanghai-collaborate-in-financial-services-and-https:// 266. Shanghai Advanced Institute of Finance (SAIF). | http://en.saif.sjtu.edu.cn/ 267. China Academy of Financial Research (CAFR). | http://en.cafr.cn/Index.aspx 268. Fudan International School of Finance (FISF). | https://fisf.fudan.edu.cn/en 269. Fudan International School of Finance (FISF). Fintech Research Centre. | https://fisf.fudan.edu.cn/en_pageFRC1.html 270. Zurich Financial Centre. | Facts and Figures 2021/2022 edition. | figures_en_2021_2022.pdfdokumente/themen/wirtschaft-arbeit/wirtschaftsstandort/dokumente/englisch/finanzplatz_zurich_facts_https://www.zh.ch/content/dam/zhweb/bilder271. INSEAD. | The Global Talent Competitiveness Index 2020: Global Talent in the Age of Artificial Intelligence (2020). | https://www.insead.edu/sites/default/files/assets/dept/globalindices/docs/GTCI-2020-report.pdf policies to attract technology companies and talent to stimulate fintech growth in the city. The government is also looking to attract fintech talent through favorable housing and medical benefits. In 2019, the Singapore-Shanghai Comprehensive Cooperation Council (SSCCC) was established to deepen collaboration between the two hubs across six key areas: 1. Belt and Road Initiative; 2. Financial services; 3. Technology and innovation; 4. Ease of doing business; 5. Urban governance; and 6. People-to-people exchange.

The fintech cluster is a key player in Zurich’s economy. Zurich generates 44% of the economic value created by Switzerland’s financial sector, which is equivalent to 17% of the region’s economic output.270 Zurich is the largest financial center in Switzerland, and also the most important financial and fintech employment market in Europe. In 2019, the financial sector of Switzerland employed 220,400 individuals, and Zurich accounted for 41%, providing approximately 92,000 financial job opportunities. Switzerland tops The Global Talent Competitiveness Index 2020271 for its high appeal to qualified employees. Its attractiveness to highly skilled workers stems from its high quality of life. Specific factors are high salaries and good career opportunities, a quality dual education system that combines education with vocational training, and a good legal and economic framework.

Zurich: Combining Education with Vocational Training

The government has launched a number of schemes such as the Global STEM Professorship Scheme and Technology Talent Admission Scheme (TechTAS) that were designated to attract international talent to work in Hong Kong. However, the COVID-19 pandemic has brought international travel to a halt and hindering global mobility, which makes hiring foreign talent more difficult. The Hong Kong government is expected to continue to stay responsive and adopt new approaches to help narrow the fintech talent

The limited local supply of experienced fintech practitioners causes a high turnover in the fintech industry,274 and more than 30% expect a 12–20% salary increment when changing jobs. Apart from salary, benefits are also an important consideration. Some of the most popular benefits include flexible working hours (62%), medical benefits (61%), and additional training and development courses (53%).275 In Hong Kong, 60% of fintech employers prefer domestically cultivated talent.276 However, recruiting and retaining local talent is not easy, especially for startups and SMEs, as most talents are attracted to larger and more established companies, which are more able to offer higher salaries, better job benefits, and clearer career paths. Recruiting foreign talents would be an interim solution to answer the needs of experienced fintech practitioners.

Zurich’s banks and insurance companies place an emphasis on continued education. They actively collaborate with the government to provide training opportunities for young employees, including offering introduction programs to high school graduates, internship placements for university students, and other training programs for fresh graduates. The Swiss Finance Institute (SFI)272 founded in 2006 by the Swiss banking industry, the Swiss Confederation, and leading Swiss universities, is a successful public-private partnership that combines academics and practical experience in the training for banking and finance talent. It is also the only national center uniting six universities across the country, 273 forming a powerful knowledge capital to guarantee long-term prosperity of the Swiss financial market’s development. The SFI has published over 100 banking and finance related articles in top academic journals. Each year, it conducts more than 30 Master’s level classes for financial practitioners in Switzerland. It is also home to the world’s largest PhD programs in finance.

74 Part I: Examination of Seven Fintech Hubs 272. Swiss Finance Institute. | X73GnDrILku-KKB81BM2tj2vxN0hDXMIFwshAFTyFE8kkaAgIkEALw_wcBhttps://www.sfi.ch/en/?gclid=Cj0KCQjw9YWDBhDyARIsADt6sGYXOa7k__ 273. Swiss Finance Institute. | About Us. | https://www.sfi.ch/en/about-us 274. The survey period was around 2018 to 2019. For details, please visit us/media-releases/95-survey-respondents-agree-hong-kong-facing-acute-fintech-talent-shortagehttps://www.michaelpage.com.hk/about275. Michael Page. | Hiring in Fintech – Survey and Dialogue. | https://www.michaelpage.com.hk/sites/michaelpage. com.hk/files/16785-hk_fintech_brochure_mp.v8.pdf 276. Michael Page. | Hiring in Fintech – Survey and Dialogue. | https://www.michaelpage.com.hk/sites/michaelpage. com.hk/files/16785-hk_fintech_brochure_mp.v8.pdf

HONG KONG Talent Insufficient Sufficient Hong Kong as a Global Fintech Hub: Talent

75 Talent 277.South China Morning Post. | Hong Kong’s IT sector facing shortage of skilled talent as Covid-19 keeps foreigners away and locals mull migration (Mar 2021). | https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3125233/hong-kongs-it-sector-facing-shortage-skilled 278.South China Morning Post. | Hong Kong’s IT sector facing shortage of skilled talent as Covid-19 keeps foreigners away and locals mull migration (Mar 2021). | https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3125233/hong-kongs-it-sector-facing-shortage-skilled 279.The Hong Kong institute of Bankers. | Talent Development Survey 2019 (2019). | http://www.hkib.org/pdf/1587977354_HKIB%20Talent%20Survey%20 2019%20Full%20report.pdf 280.South China Morning Post. | Hong Kong’s IT sector facing shortage of skilled talent as Covid-19 keeps foreigners away and locals mull migration (Mar 2021).| https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3125233/hong-kongs-it-sector-facing-shortage-skilled 281.HKUST Business School. | The Fintech Talent Competency, and Manpower Study (2020). | https://www.bm.ust.hk/en-us/media-resources/overview/ publications/reports/issue:2/ supply-and-demand gap in Hong Kong in response to the disruptions brought by the pandemic. According to figures from the Immigration Department, the number of work visas approved heavily decreased from 41,289 in 2019 to only 14,617 in 2020. Moreover, new visa applications in the IT industry also decreased from more than 1,600 in 2019 to 652 in 2020. 277 The pandemic affected the talent inflow from international countries and Mainland China, where the number of new visas for the Mainland Talents and Professionals Scheme has dropped by nearly 50% in 2020. 278 Nevertheless, the development of the Greater Bay Area will bring talent exchange and talent development opportunities to Hong Kong. The talent exchange facilitated by the Greater Bay Area development plans would likely provide more talent with technical skills to Hong Kong from Mainland China in exchange for some of Hong Kong’s financial talent.

However, instead of relying on foreign talents, Hong Kong’s ultimate objective should be having a sufficient and sustainable talent supply that is the right balance of local and foreign talents. Hiring from local universities has always been a major source of talent for finteh companies. Understanding the global needs for fintech professionals, the universities in Hong Kong have been gradually increasing the number of fintech-related courses and degree programs at undergraduate and postgraduate levels in recent years. As of May 2021, there are 12 fintech-focused degree programs at the undergraduate and postgraduate levels offered by seven local universities, of which includes Doctor of FinTech (DFinTech), the first doctoral level fintech-related degree, offered by the Hong Kong Polytechnic University.

There are around 3,360 startups in Hong Kong, employing 10,688 professionals.280 Fintech employers – no matter startups or tech giants – are competing for the same pool of talent. The top sources of talent for the Hong Kong fintech industry are: (1) recruiting practitioners within Hong Kong, (2) upskilling existing staff, (3) recruiting from local universities, followed by (4) hiring graduates and practitioners from outside of Hong Kong,281 which shows that banks and fintech companies prefer local talents more than foreign talents. Meanwhile, hiring foreign talents could provide an interim solution to ease the talent shortage problem as current practitioners are limited. Overall, the Hong Kong financial services industry is facing the challenges to attract and retain talent to meet the demand of implementing digital blueprints, especially those with expertise in data science, cloud computing and cybersecurity. Since regtech has become a major strategic focus of regulators in Hong Kong, people with the tech skills to address the related tech issues such as the complexity of AI models and lack of quality data will be in even higher demand.

Other than the local educational institutions, different government units and private companies also organized talent development and training programs for university students and industry practitioners. They also work with the universities and each other on a wide variety of talent development initiatives, including student competitions, hackathons, workshops and seminars. For a shorterterm supply of talent, upskilling existing financial services practitioners would be a common source to fill the continuously surging demand. The advantage with upskilling existing staff is that they already have a good understanding of the business, culture and operations of the company and the industry. According to the Talent Development Survey 2019 conducted by the Hong Kong Institution of Bankers, around 70% of respondents agreed that banks should reskill and upskill existing staff, while 97% believed banking practitioners should enhance their fintech capabilities.279 However, in-house training requires both financial and human resources that may not be feasible for small and medium firms.

1. A comprehensive, clear, and transparent regulatory and licensing framework is in place. Regulators must take initiatives to lead the industry in the right direction. Having regulators that are able to react quickly to industry developments, and provide regulations and guidelines that fit the industry’s needs is a must.

2. A strong cybersecurity and consent-based digital identity infrastructure that underpins the city, making it a resilient and privacy-respecting environment for business, innovation, and customers.

3. A favorable legal framework and tax system for enhancing business and generating innovation.

4. Forward-looking strategic plans for the fintech industry, and a dedicated task force to implement these plans.

8. A strong pipeline of fintech talent through connecting the universities and the industry to foster opportunities for students to gain practical industry experience and skills through work placements.

Ten Key Features of a Global Fintech Hub

76 Part I: Examination of Seven Fintech Hubs

6. A robust fintech community that is actively engaged in different types of collaboration. Through organizing international industry conferences and participating in fintech bridge agreements with overseas fintech communities and other industries, to strengthen its regional and international connectivity, and reinforce its status as a strong fintech powerhouse.

5. An enabling and open government that provides a high fault-tolerance and inclusive sandbox environment to encourage fintech innovation and an entrepreneurial culture.

7. Policy-driven public and private funding support are available and balanced. An effective and impactful public funding mechanism and a robust venture capital scene are vital to support the growth of the fintech industry.

10. High awareness, acceptance, and trust-building towards fintech for all members in the society, including the government, industry players, and the people they serve.

9. Further education and retraining programs that are strategically planned and executed to upskill and reskill the existing workforce. This ensures a sustainable supply of fintech talent, and narrows the technical gap between senior management, middle management, and operational level workers.

Based on our observations of the selected hubs’ approaches and strategies in terms of their regulation, government support, business environment, and talent landscape related to fintech, we have identified the following features for which a leading global fintech hub is expected to possess:

77 PART II Key PolicyObservations,Implications and Recommended Actions for Hong Kong

Based on our observations in Part I, some of the current practices in the Hong Kong fintech industry are likely to enhance its ability to achieve the qualities of a leading global fintech hub. We identify 10 opportunities which can support Hong Kong’s ambition to become a leading global fintech hub. We group these opportunities into three action areas: high-level strategy, incentives to innovate, and talent building as outlined below:

Ten Opportunities for Strengthening Hong Kong’s Position as a Global Fintech Hub

78 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

Talent Building 8. Create a compulsory internship scheme specific to fintech students to prepare students to meet future market demand.

1. Establish a Hong Kong Fintech Ecosystem Committee, to streamline the development of the Hong Kong’s fintech ecosystem and coordinate with different stakeholders, to support the thematic policy areas outlined below.

High-level Strategy

7. Review, evaluate and promote the tax deduction policy for eligible R&D activities to increase innovation in fintech R&D.

4. Prioritize development of the Commercial Data Interchange (CDI) as part of HKMA’s Fintech 2025 strategy to improve the data landscape to enhance financial development, while protecting customers’ rights to consent and privacy.

6. Establish a centralized incubation funding system by consolidating the resources from public and private sectors.

Within each of the opportunity areas, we outline our observations, recommended actions and objectives. Our observations are based on the findings from the preceding section which investigates the different facets of successful fintech policies and strategies across the selected economies and compared to these developments in Hong Kong. The comparison is used to derive a set of steering objectives which frames how Hong Kong can capitalize on the opportunity. These objectives are subsequently followed by more specific recommended actions which are intended to plug the gap between the observed international best practices and the situation in Hong Kong.

10. Review and evaluate the overseas talent scheme and allow more flexibility, including remote work approval, for fintech companies to hire overseas fintech talent.

Incentives to Innovate

9. Establish a stronger certification link between Continued Education Fund (CEF), Qualification Framework (QF) and internship schemes to promote on-the-job training opportunities to the existing workforce to help meet current market demand.

2. Establish a fintech infrastructure strategy focused on product development and financial inclusion, reinforced by secure, privacy-respecting fintech infrastructure and widespread adoption.

3. Transform Hong Kong into a regional fintech sandbox which attracts local and regional stakeholders to develop and grow fintech products and solutions in Hong Kong.

5. Improve the effectiveness and impact of public funding on different stages of innovation.

To bring Hong Kong’s status to the top tier among global fintech hubs, the Hong Kong government will need to develop a high-level strategy which strikes a balance between promoting innovation and encouraging effective competition while protecting clients and investors via its regulatory regimes. A clear, forward-looking, and flexible regulation framework with precise policies and procedures targeted in facilitating the city’s fintech development must be in place.

Policy objectives actionRecommended insightsIndustrial initiativesPolicy

ObservationsResearch [

We have made four observations regarding policies and regulations and provide subsequent recommendations which are intended to develop a rich ecosystem welcomed by all fintech stakeholders.

79 High-level Strategy

With new regulations and facilitations, policy initiatives, and funding schemes, the Hong Kong government has been giving substantial support to the Hong Kong fintech sector, prioritizing fintech as one of the key areas for the financial industry’s future development. Hong Kong was one of the early adopters to embrace fintech by launching a regulatory sandbox.282 It was also the first mover to issue virtual banking licenses in Asia.283 Among the four pillar industries in Hong Kong, the financial services sector has contributed most significantly to the city’s economy. In 2019 alone, it accounted for more than 21% of Hong Kong’s GDP and provided over 270,000 jobs.284 Given the consensus by both the public and private sectors in recognizing fintech as one of the keys to maintaining the strength of the financial services sector, growing demand for talent with skills in AI and big data is expected for fintech and other industries.285

Exhibit 20 ] : The Relationship between Observations and Recommended Actions 282. Hong Kong Monetary Authority. | Fintech Supervisory Sandbox (FSS) (May 2021). | eng/key-functions/international-financial-centre/fintech/fintech-supervisory-sandbox-fss/https://www.hkma.gov.hk/ 283. Hong Kong Monetary Authority. | Virtual Banks (May 2021). | banking/banking-regulatory-and-supervisory-regime/virtual-banks/https://www.hkma.gov.hk/eng/key-functions/ 284. HKTDC Research. | Financial Services Industry in Hong Kong (Feb 2021). | https://research.hktdc.com/en/ article/MzEzOTI4MDY3 285. Tang, H. (2021). | Hong Kong’s Urgently Needed Third Economic Transformation. In Hong Kong Economic Policy Green Paper 2021 (pp. 3-16). | https://www.fbe.hku.hk/wp-content/uploads/2021/02/green_papers_2021_eng.pdf

action:Recommended Establish a Hong Kong Fintech Ecosystem Committee (The Committee) . It could be co-chaired by a bureau related to fintech development. The roles and responsibilities of the Committee would cover:

• Outlining talent development strategies;

• Forming fintech research groups;

As of January 2021, there were more than 600 fintech companies, eight virtual banks, three fintech unicorns, over 160 licensed banks, and more than 160 authorized insurers in Hong Kong.286 In Hong Kong, there are separate public agencies coordinating fintech policy and initiatives such as Cyberport , the largest fintech community in Hong Kong; and Hong Kong Science and Technology Parks (HKSTP) , the largest technology R&D base in the city. Other government units such as The Hong Kong Trade Development Council (HKTDC) and InvestHK, as well as some private large corporates like Tencent and Accenture, have also established their fintech communities in the city. Both Innovation and Technology Bureau (ITB) and Financial Services and the Treasury Bureau (FSTB) are government bureaus managing fintech. However, the fintech sector and startups community have expressed that the roles and functions of ITB and FSTB regarding fintech development are somewhat ambiguous.287 286. InvestHK. | FintechHK: Fast track your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/ with The Advisory Board of the Fintech Research Project, dated 9 April 2021.

files/FintechHK%20Flyer_ENG_Jan%202021.pdf 287. Interview

• Coordinating, formulating and implementing strategic plans for fintech development;

Observation: Separate government departments and bureaus manage the various fintech communities and their issues, thus making it difficult to provide centralized policies and information to facilitate collaboration between public and private stakeholders in the fintech ecosystem.

80 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Opportunity 1

• Establishing local and international fintech networks;

• Operating as a platform to centralize fintech-related information and resources.

Objective: The Committee will become an effective platform to coordinate with different fintech stakeholders and the fintech community to streamline all necessary policies, procedures and resources for fintech development.

• Reviewing existing financial regulations and governmentfunded programs;

To promote digital finance and bolster fintech development efficiently, there is an urgent need to establish an official Fintech Ecosystem Committee (Committee) . This Committee would coordinate with different fintech stakeholders to formulate a fintech strategy and establish a regional fintech sandbox. Serving as an official platform to facilitate communication and engagement within the fintech community, a Committee could provide mandates for stakeholders to reflect their views to the government and regulators, and maintain healthy and open relationships among public agencies, regulatory regimes, and market participants.

Both Singapore and the UK already have independent fintech initiatives with crossindustry collaboration. The Singapore Fintech Association (SFA) and Innovate Finance from the UK have successfully constructed influential and united platforms, receive support from their governments, and are recognized by their local fintech communities. The SFA actively promotes collaboration among participants in the ecosystem and organizes cross-sector events such as Singapore Fintech Festival , which successfully promotes Singapore to the world stage and has become the world’s largest fintech festival. 288

Without a cross-industry platform, it is difficult to enhance mutual understanding and facilitate collaboration between public and private stakeholders in the fintech ecosystem.

Comparably, the UK’s Innovate Finance is committed to promoting the initiatives FinTech for Schools (to support the current and next generation of innovators) and Women in Fintech (to promote diversity and inclusion in the growing fintech industry).289

that industry voices could be effectively communicated to the government and regulators through the mechanisms established. Taking the SFA as an example, at least half of its elected council members must be start-ups with revenue of less than S$1m (US$753,000) per year, to ensure a variety of start-up voices will be heard by the SFA 290

The proposed Committee would not simply be an industry association. Instead, it should act as an official and non-profit platform to serve Hong Kong’s fintech community. The platform should welcome all stakeholders in the Hong Kong fintech ecosystem—from early stage start-ups to large fintech corporates; local, regional and international financial institutions; professional services firms; and the government—to contribute to the Committee. In close partnership with the government and regulators, it could: (1) connect local and overseas fintech communities; (2) attract local and overseas investment in Hong Kong; (3) attract overseas talent; and (4) retain local talent in the city. This Committee would not only benefit early-stage fintech start-ups, but also the whole community. This centralization of fintech information would ensure that industry stakeholders receive efficient and timely notification of any regulation changes and government Simultaneously,initiatives.itisexpected

288. Singapore Fintech Festival (2021). | https://www.fintechfestival.sg/ 289. Innovate Finance (2021). | https://www.innovatefinance.com/ 290. Varun Mittal. Lillian Koh. | Singapore: The Fintech Nation. Relentless Pursuit of Excellence. (Singapore: McGraw Hill, 2020, p.61)

82 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

• Identify Hong Kong’s strengths, weaknesses, opportunities, and threats compared with other fintech hubs and within the Greater Bay Area region;

To establish the effective and highly coordinated fintech ecosystem that is essential to Hong Kong’s fintech development, the Committee needs to:

• Outline the visions, planning goals and building blocks291 that will contribute to the overall development of fintech;

I. Formulate a Comprehensive and Strategic Fintech Plan

Before formulating a strategy, understanding Hong Kong’s fintech landscape as compared with other fintech hubs is a must. Additional resources will be needed for those areas requiring further government support. The following tasks could be referenced by the government as part of the strategic fintech plan:

A comprehensive and strategic fintech development plan would help facilitate crossbureau and regulator coordination. The key mission would be to prioritize development areas, overcome cross-industry challenges such as financial inclusion, and adopt policies conducive to all players including traditional financial institutions, and fintech companies and innovators. In the long run, this plan could facilitate optimal utilization of public resources and help improve living standards of individuals by fostering a vibrant economy and inclusive society.

291. Referencing to HK 2030+ Strategic Plan. For details, please visit https://www.hk2030plus.hk/document/ 2030+Booklet_Eng.pdf

Fintech involves a multi-layered sector and various stakeholders across government bureaus and departments, financial regulators, and other industry regulatory bodies. Apart from the three main financial regulators in Hong Kong, namely the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC), and Insurance Authority (IA), there are numerous government departments, organizations and industry associations currently participating in Hong Kong’s fintech development. These include the Financial Services and the Treasury Bureau (FSTB), Innovation and Technology Bureau (ITB), Hong Kong Trade Development Council (HKTDC), InvestHK, Cyberport, and the Hong Kong Science and Technology Parks Corporation (HKSTP), as well as other industry associations such as the Hong Kong Institute of Bankers (HKIB), the Hong Kong Association of Banks (HKAB) and the Fintech Association of Hong Kong (FTAHK). Each of these bodies has its own statutory terms of reference with individual organizational goals and agendas. On top of this, fintech is not an individual task, but is embedded in other government initiatives such as the Smart City Blueprint and Green Finance. Without a centralized, government-led strategic development plan, fintech would be a piecemeal development by different government units with different organization interests, objectives, and agendas to fulfill. Thus, one of the key roles of the Committee would be determining standards of coordination.

• Set Key Performance Indicators (KPIs) to evaluate the plan’s effectiveness. These could include: the technology adoption rate in the banking sector; the fintech adoption rate among the general public and/or specific group of customers; fintech’s GDP contribution; investment to fintech from different private and public sources; and the current number of fintech talents, startups and corporations;

• Enhance coordination among the different initiatives across government bureaus and departments, other public agency units, and the industry;

• Provide a comprehensive overview of innovation systems and support needed for each development stage of the fintech ecosystem292 in order to sustain a robust and vibrant fintech community;

• Formulate plan to capitalize technical support and existing resource to develop regional sandbox initiatives.

II. Establishing Local and International Fintech Networks

• Consider other issues related to fintech development such as law and regulations (e.g. personal data and identity-related laws and regulations) to adjust and revise the regulations and administrative process if necessary;

• Outline how to mobilize different government bureaus and departments to execute fintech-related policy initiatives;

• Collect feedback on government fintech policies and programs;

• Clearly state objectives, corresponding policy actions, and detailed schedules for execution;

Another key role of the Committee is to establish local and international fintech networks. These networks would facilitate collaboration between all market participants and stakeholders in Hong Kong’s fintech ecosystem. Networks would help facilitate business and investment opportunities, find solutions to key issues, and promote best fintech practices in a sustainable, inclusive, and transparent manner. For example, professional business services and venture capital are important elements to maintain a healthy fintech ecosystem. The growing maturity of Hong Kong’s fintech community and the emerging laws, regulations, and ethical considerations for fintech activities have boosted the business services required by the industry. Collaborating with legal and audit firms, reviewing the services of tech giants, and providing technical support and training to the local fintech community are some of the important Committee tasks.

292. Concerning the development of innovation, one of the models have differentiated innovation stages including R&D, demonstration, pre commercial (large scale demonstration), supported commercial (under generic support schemes) and commercial stages. Each stage should be supported by government policy intervention to facilitate the availability of investment and the development of technological inputs. At the same time, the analysis of market needs are also essential for innovation development. For more details, please visit Tim Foxon, Zen Makuch, Macarena Mata and Peter Pearson (2004). | Innovation Systems and Policy-Making Processes for the Transition to Sustainability, pp.99-100. | http://userpage.fu-berlin.de/ffu/akumwelt/bc2003/ proceedings/096%20-%20112%20foxon.pdf

• Determine how to execute the policy evaluation and improvement plan;

The Committee would formulate a fintech talent development strategy that would include how to cultivate the necessary soft and hard skills in the local education system as well as to provide on-the-job training to upskill the existing workforce. In addition, continued efforts to attract overseas talent to Hong Kong would be beneficial.293

III. Establishing a Research Team for the Development of the Fintech Industry

Recommended actions #7-9 suggest detailed policy initiatives that would strengthen the fintech talent pipeline.

By helping the local fintech community connect with global fintech communities, the Committee can foster the development of international partnerships.

84 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

293. Hong Kong has been facing the shortage of skilled IT talent with the main reasons which the local universities could not supply graduates with in-demand IT, data science and computer engineering skills to meet the market needs. For details, please visit South China Morning Post (Mar 2021). | Hong Kong’s IT sector facing shortage of skilled talent as Covid-19 keeps foreigners away and locals mull. migration | com/news/hong-kong/hong-kong-economy/article/3125233/hong-kongs-it-sector-facing-shortage-skilledhttps://www.scmp.

Another important function of the Committee is to establish a research team to conduct market research and regularly assess industry developments. This research would help the government and regulatory bodies formulate effective public policies.

accelerators from Mainland China and overseas to establish a Fintech Investor Network

According to the Fintech Employment 2019 report, 95% of fintech companies in Hong Kong said they have been facing a severe shortage of fintech talent, and we expect this to grow until a solid and growing talent base is firmly established.

The research team could create and maintain a fintech company database to keep track of information such as a firm’s specific purpose, number of employees, major business partners, and local and international business networks. This would increase the Committee’s understanding of the market, and promote transparent communication among the local fintech network of the government, the fintech industry, the professional sector, and other public agencies.

The Committee could also nurture the local venture capital scene by establishing partnerships with venture capitalists, angel investors, private equity funds and

IV. Formulating a Fintech Talent Development Strategy

Retaining talent and sustaining a talent pipeline for the city’s fintech development is another key factor to transform Hong Kong into a leading fintech hub.

In particular, Hong Kong has been a pioneer in establishing virtual banks in the region, and the first batch of virtual bank licenses were granted by The Hong Kong Monetary Authority (HKMA) in March 2019, which resulted in a surge in the region’s digital banking development. In December 2020, all eight virtual banks in Hong Kong had officially launched their services, and had combined deposits of nearly HK$15bn.294 Hong Kong’s experience in managing and operating virtual banks could be shared on the centralized platform to regional audiences and help strengthen Hong Kong’s leading position in digital banking.

V. Being a Centralized Information and Resource Platform

85 294. Hong Kong Monetary Authority (2020). | 2020 Annual Report (p.5) | https://www.hkma.gov.hk/media/eng/ publication-and-research/annual-report/2020/AR2020_E.pdf

Stakeholders would be able to easily access information about: (1) public policies; (2) information and resources related to sandbox and incubation hubs; (3) available programs and training for fintech practitioners; (4) local and international events; and (5) laws, regulations, and licensing issues.

The Committee could organize a centralized platform to provide Hong Kong fintech industry resources and policy information. Currently, accessing this information is a timeconsuming effort, with sources scattered across multiple websites.

Since the 2020 global lockdown, technology has increased in importance both locally and around the world, as the routines of our daily lives were greatly changed. Financial institutions that have been adopting cutting-edge technology solutions are in a better position to provide financial services to their customers even if they have had to adopt remote work practices for a considerable duration.

Fintech infrastructure is regarded as an indispensable element to maintain fintech applications. Both hard and soft infrastructure play vital roles in fostering the development of fintech. Science Park, Cyberport, the Data Technology Hub and the five R&D Centres295 under the Hong Kong R&D Centre Programme are the key hard infrastructures to facilitate innovation and technological breakthroughs in the city. Meanwhile, HKMA has contributed to the development of soft infrastructure for the city’s development by implementing policy initiatives such as Open API for the banking sector, a Fintech Supervisory Sandbox, the Faster Payment System (FPS), and the Commercial Data Interchange (CDI). They have put equal importance on distributing resources to both hard and soft infrastructures to ensure fintech products and solutions reach the marketization and public adoption stage.

295. The five R&D centers are Automotive Platforms and Application Systems R&D Centre (APAS), Hong Kong Applied Science and Technology Research Institute ("ASTRI"), Hong Kong Research Institute of Textiles and Apparel (HKRITA), Logistics and Supply Chain MultiTech R&D Centre (LSCM) and Nano and Advanced Materials Institute (NAMI). For details, please visit https://www.itc.gov.hk/en/resources/res_dev_centre.html

action:Recommended Establish a fintech infrastructure strategy and action plan.

The fintech industry and its stakeholders look to the government to commit more public resources to soft infrastructure to improve its impact on market development.

1. Digital ID trust framework

The following ten soft fintech infrastructures are important examples to foster a more comprehensive digital environment for fintech development:

86 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Opportunity 2

Observation: Common and widely accessible data standards are crucial infrastructure for fintech development. Although the HKMA has been promoting a common financial data standard, an increase in market coverage and industry adoption of fintech products would be beneficial.

Objective: To promote the development of fintech and financial inclusion, a widely adopted, secure, and privacy-respecting fintech infrastructure is essential to reinforce Hong Kong’s position as an international fintech hub.

2. Data sharing platform, e.g., Open API, CDI 3. Digital identity (Know Your Customer), e.g., iAM Smart, for citizen and company authentication 4. Payment infrastructure, e.g., FPS 5. Cloud infrastructure

• Collaborate with the fintech sector at all innovation stages. As the fintech sector requires the incorporation of digital identity as part of product development, their opinions on how to incorporate digital identity for all innovation stages would be essential for producing better cross-government and cross-sector cooperation on digital IDs;

The Hong Kong government has made good progress in adopting common digital identity and data infrastructure such as the iAM Smart platform, Open API and the Commercial Data Interchange (CDI) initiatives, and adoption of a digital payment system such as the Faster Payment System (FPS). These are good examples of cross-government cooperation on digital IDs and regtech development. In Hong Kong, data protection is governed by the Personal Data (Privacy) Ordinance (PDPO). It regulates the collection, use and handling of personal data under six data protection principles. However, unlike the more stringent regulations adopted around the world, PDPO lacks a mandatory data breach notification system. Fintech companies in Hong Kong have proven their potential to incorporate big data and data analytics skills to generate smart data and AI financial services. In this digital age, digital identity is widely considered to be an important foundation of fintech infrastructure. Fintech startups have expressed that they have not been granted access to public data and cannot compete in product development with large firms that have customer data. The standard of the government’s open API platform should be raised by incorporating the needs of fintech startups and companies, while fintech companies can utilize open information to offer match-the-market products tailored to customers’ personal needs. In a nutshell, the government could consider the following to achieve the abovementioned objectives.

• Require all government bureaus, departments and related units to provide public data regularly by utilizing Open API;

87 6. Regional sandbox infrastructure 7. Credit bureau standard at both individual and corporate level 8. Crypto and digital assets infrastructure 9. Digital certificate infrastructure 10. IoT and big data infrastructure We look at digital identity, ID trust framework and open API as examples. The events of 2020 have accelerated the development of digital transformation at an unprecedented rate. In this digital age, fintech solutions related to digital identity (for payment transactions, virtual banking, insurtech, healthtech as well as smart public services) are significant for both public and private services. Therefore, digital identity is looked upon as an enabler for digital transactions in an increasingly digital economy. We need to examine the feasibility of innovating applications in both the public and private sectors. However, an identity infrastructure in Hong Kong has yet to be developed across the public and private sectors that keeps pace with the fast-growing digital economy. If common data standards can be implemented more widely, it could serve as a foundation for more significant improvement in digital financial services in Hong Kong.

• Establish appropriate platforms and mechanisms in compliance with the laws for public-private sharing of data.

298. Monetary Authority of Singapore. | MAS Launches Sandbox Express for Faster Market Testing of Innovative Financial Services (Aug 2019). | express-for-faster-market-testing-of-innovative-financial-serviceshttps://www.mas.gov.sg/news/media-releases/2019/mas-launches-sandbox299. Interview with The Advisory Board of the Fintech Research Project, dated 9 April 2021. 300. Office of the Privacy Commissioner for Personal Data, Hong Kong. | The Personal Data (Privacy) Ordinance. | https://www.pcpd.org.hk/english/data_privacy_law/ordinance_at_a_Glance/ordinance.html

Observation: Since 2016, the HKMA, the IA and the SFC have established regulatory sandboxes in Hong Kong. Following London and Singapore, Hong Kong is among the first global financial centers to establish regulatory sandbox programs.

299 300 As of April 2021, there were 214 fintech initiatives 296. The 2021-22 budget. | Financial Technology (2021). | https://www.budget.gov.hk/2021/eng/budget33.html

88 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Opportunity 3

Objective: To expand Hong Kong’s influence and impact on regional fintech development, to attract more talent and investment to the city’s fintech ecosystem, and to maintain a vibrant and two-way environment (inward and outward of the city) for the sandbox users.

action:Recommended Transform Hong Kong into a regional fintech sandbox by attracting local and regional participants to trial their fintech products and solutions in Hong Kong’s sandbox environment.

Following London and Singapore, Hong Kong is among the first global financial centers to establish regulatory sandbox programs. Since 2016, the HKMA, the IA, and the SFC have established regulatory sandboxes in Hong Kong. Announced in the 2020-21 Budget, the HKMA considered enhancing its fintech supervisory sandbox system by providing “through-train” vetting and funding arrangements, and offering a faster track for fintech companies to launch their products.296 We note that Hong Kong has already cultivated a conducive environment for fintech companies to continue to grow and scale up across other businesses. The existing sandbox programs organized by the three regulatory bodies have played an important role in supporting innovation and development for Hong Kong fintech businesses. However, other jurisdictions continue to review and modify their fintech sandbox initiatives. For example, the UK’s Chancellor of the Exchequer announced in April 2021 that the UK government planned to create a new “scale box” and permanent “digital sandbox” to encourage fintech collaboration. 297 Meanwhile, the Singapore government launched the Sandbox Express in 2019, allowing eligible fintech companies to begin market testing within 21 days of applying to the Monetary Authority of Singapore (MAS).298

297. Gov.UK.| Ambitious plans to boost UK fintech and financial services set out by Chancellor (Apr 2021). | chancellorwww.gov.uk/government/news/ambitious-plans-to-boost-uk-fintech-and-financial-services-set-out-by-https://

Although the financial and fintech sectors in Hong Kong welcome the regulatory sandbox programs, some surveyed reflected the difficulty in obtaining valuable data, and a lack of professional, technical and legal support when they participated in the sandbox. Some mentioned being discouraged to adopting a sandbox if they had products that were not compliant with the Personal Data (Privacy) Ordinance (PDPO), and were at very high risk to test their fintech products.

• Sandbox participants are able to access a co-working space provided by Cyberport and HKSTP;

302. Interview with The Advisory Board of the Fintech Research Project, dated 9 April 2021.

Information may include information such as: the numbers of applications for the sandbox; the success rate of sandbox applications; application guidelines; sector and job nature of companies; participants’ comments after using the sandbox service; the average duration for approval; the approval process; extension possibilities; and official responses to comments made by sandbox participants.

302 We suggest that Hong Kong’s regulatory sandbox should be adapted and modified to transform what are mainly local sandbox programs into regional sandbox programs. Regional sandbox programs would not only expand Hong Kong’s influence and impact on regional fintech development, but would also help the scale up to an international level, while attracting more talent and investment to the city’s fintech ecosystem. Local fintech businesses could more easily expand overseas after testing their systems in Hong Kong’s regional sandbox. Furthermore, overseas entrepreneurs could also be encouraged to evaluate their products in Hong Kong’s sandboxes to simultaneously facilitate two-way development. We envision that:

• The Committee could collaborate with the fintech community to outline the design, operation and technical support needed for the regional sandbox programs;

The Hong Kong government could further evaluate whether the sandbox initiative is still market-leading and relevant for all stakeholders, including smaller banks and commercial companies. If adopted, a higher fault-tolerance regulatory framework, higher transparency and openness, and a business-focused scenario in the sandbox would encourage more smaller banks and companies in the financial sector to participate.

The Committee (see Opportunity 1 above) could coordinate with the financial regulators (namely HKMA, SFC and IA) that manage existing sandbox programs to modify and update their respective guidelines to transform their sandbox programs into regional sandboxes;

• Extending application eligibility to other Hong Kong and regional industries such as professional and business services would enhance the development of innovative fintech products and solutions;

• An open environment with a toned-down regulatory environment would enable a broader range of innovative products and solutions to be developed and evaluated;

• Public access to information about sandbox activities on the website/database set up by the Committee , to maintain high transparency for regional sandboxes.

• Increased technical support (e.g. data formatting, data analysis) and consultation services (e.g. legal and compliance advice) could be provided for sandbox participants;

• An updated evaluation process to include regional sandbox programs. For example, regular communication with participants and potential participants, collecting their feedback on the sandbox;

301 The direct involvement of other financial service sectors and small fintech companies in the sandbox have to be validated and further reviewed.

In view of Hong Kong’s unique economic position, Hong Kong is serving both as a gateway for international companies to enter the Mainland China market and as a perfect launch pad for local and Chinese fintech companies to expand globally. We believe that Hong Kong has great potential to transform itself into a regional fintech sandbox by attracting both local and regional participants to test their fintech products and solutions. With a receptive and progressive regulatory framework, fintech start-ups and technology companies would be more likely to regard Hong Kong as an ideal testing ground for their innovative products and services.

301. Hong Kong Monetary Authority. | Fintech Supervisory Sandbox (FSS). | https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/ fintech/fintech-supervisory-sandbox-fss/

89 piloted in the Fintech Supervisory Sandbox (FSS). Threequarters of the initiatives were led by banks to collaborate with their partnering technology firms.

•

• Simultaneous local and regional promotion plans would encourage more local and regional financial institutions and commercial enterprises to select Hong Kong sandboxes to develop and evaluate their fintech solutions;

303. Hong Kong Monetary Authority (2020). | What’s next in our fintech journey. | https://www.hkma.gov.hk/eng/ news-and-media/speeches/2020/11/20201102-1/ 304. Hong Kong Monetary Authority (2021). | The HKMA hosts virtual symposium on Commercial Data Interchange. | https://www.hkma.gov.hk/eng/news-and-media/press-releases/2021/07/20210722-5/

With the support of the Hong Kong government, banks and other financial institutions are working on improving their digital platforms to enhance efficiency and improve customer Whileservice.some larger banks are currently using their in-house big data set to verify customers’’credit history,303 smaller banks, innovators and entrepreneurs are not able to perform this kind of assessment, as they lack in-house data and resources. Thus, they face obstacles when they want to access, validate, and transmit data for carrying out various banking activities such as credit assessment, customer authentication, and compliance monitoring. These data activities are not currently regulated and guided by any protocols and official standards set by the Hong Kong government. However, one of HKMA’s major initiatives announced in Fintech 2025 is the Commercial Data Interchange (CDI) , which would facilitate efficient financial intermediation for data sharing between banks through data providers. This initiative is meant to cover the banking industry and data providers,304 and would help level the field for smaller stakeholders in fintech.

Opportunity

Improving the data infrastructure, with carefully implemented standard protocols and regulations to ensure that solid individual and corporate consent measures are in place, is crucial for the industry. A digital infrastructure that both facilitates the ease of fintech industry growth while protecting customers from the potential of digital identity infringements will be key to Hong Kong’s success.

The HKMA is committed to initiating a Commercial Data Interchange (CDI) as one of the major initiatives named under its Fintech 2025 strategy. As Hong Kong’s fintech data sharing infrastructure currently lacks efficiency and has been a limiting factor in fintech development, the CDI is a welcome initiative.

Objective: To improve the data landscape, an essential foundation for understanding and encouraging beneficial financial activities, while at the same time protecting customers’ rights to consent and privacy.

90 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

action:Recommended Formulate protocols and standards to strengthen a market development mandate for secure and privacy-respecting data access, sharing, and transmission.

Observation: The Hong Kong government and financial sectors have strongly supported technologies for financial development.

305. The 2021-22 budget. | Innovation and Technology (2021). | https://www.budget.gov.hk/2020/eng/budget14.html

Based on the opportunities observed in the I&T area, we propose that Hong Kong should establish a more sustainable fintech infrastructure to foster technological and innovation development of the fintech sector. This could be done by utilizing an API platform, enhancing a robust and secure digital identity infrastructure, evaluating its tax reduction policy, and capitalizing on existing R&D funding.

91 Innovation and Technology

The Hong Kong government has provided strong software and hardware support to industry participants to facilitate research, development, and innovation. According to the 2020-21 Budget, the Hong Kong government introduced a number of policies and allocated over HK$100bn to fund a series of measures for the city’s I&T development.305

Over the years, Hong Kong’s I&T ecosystem has undoubtedly become more vibrant, in particular in the digital transformation of fintech. For example, Hong Kong has a comparatively high customer fintech adoption rate of 67%, which is the same as Singapore, but higher than Switzerland (64%), the US (46%), and Japan (34%). 306 In addition, Hong Kong’s banking industry has adopted a range of fintech solutions, with 86% of banks having already adopted or have plans to adopt fintech solutions across all types of financial services.307 Different sectors in Hong Kong have also embraced technology. For example, the Hong Kong education system has increased its focus on STEM, and local I&T and fintech companies have won international awards. An even stronger fintech infrastructure would further enhance fintech’s growth into a mature and sustainable industry in Hong Kong.

307. Hong Kong Monetary Authority. | Report on Fintech Adoption and Innovation in the Hong Kong Banking Industry (May 2020). | https://www.hkma.gov.hk/eng/news-and-media/press-releases/2020/05/20200520-5/

306. EY. | Global FinTech Adoption Index 2019 (2019). | https://www.ey.com/en_gl/ey-global-fintech-adoption-index

With opportunities brought by the 14th Five-Year Plan and the Guangdong-Hong KongMacao Greater Bay Area, Hong Kong can serve as a strategic bridge for innovative companies seeking to enter the Mainland market.

The Hong Kong government reserves large amounts of public funding to promote I&T development. As at February 2021, there were 19,832 projects approved under the Innovation and Technology Fund (ITF), with a total value of US$29mn. Applicants under schemes such as Research Talent Hub, Innovation and Technology Support Programme, Patent Application Grant, and Reindustrialisation and Technology Training Programme received most of the ITF.308 However, nearly all of the lead ITF applicants are from the academic sector and research institutes. 309 Among the 308 approved projects under ITF, only 1.3% were related to fintech and the financial service sector.310 According to a Legislative Council paper, as of April 2020, the Innovation and Technology Venture Fund (ITVF) has funded only two fintech companies, while the Enterprise Support Scheme (ESS) has funded another six fintech-related projects.311 The Technology Voucher Programme (TVP) is another funding source under the ITF. It has approved 49 applications from banking, insurance and other financial services, with a total funding of HK$8m.312

Observation: The Hong Kong government reserves large amounts of public funding to promote I&T development. However, businesses in the financial sector such as banks, other financial service providers, and SMEs generally do not benefit from government funding. This implies that government funding is not being allocated to generate financial support to the fintech industry as a whole.

308. Innovation and Technology Fund. | Statistics of Approved Projects (as at 28/02/2021). | https://www.itf.gov.hk/en/ itf-statistics/index-1.html 309. According to the approved ITF projects in 2019, seven universities and other research centers like Hong Kong Institute of Biotechnology Limited, Automotive Platforms and Application Systems R&D Centre, Logistics and Supply Chain MultiTech R&D Centre Limited etc., were the main lead applicants which have received funding from ITF. For details, please visit DATA.GOV.HK. | Approved Projects of Innovation and Technology Fund (2019). | https://data.gov.hk/en-data/dataset/hk-itc-team1-annual-itf-approved-projects-list 310. In 2019, there were four out of 308 approved projects (about 1.3%) related to fintech and financial service development. For details, please visit DATA.GOV.HK. | Approved Projects of Innovation and Technology Fund (2019). | https://data.gov.hk/en-data/dataset/hk-itc-team1-annual-itf-approved-projects-list 311. Legislative Council Panel on Financial Affairs. | Development of Financial Technologies (Jun 2020). | https:// www.legco.gov.hk/yr19-20/english/panels/fa/papers/fa20200601cb1-674-4-e.pdf 312. Ibid.

Opportunity 5

action:Recommended Improve the effectiveness and impact of public funding on different stages of innovation.

Objective: To distribute resources to the stakeholders of each stage of innovation and to set clear performance indicators and conduct internal audits to review and evaluate the effectiveness of the funding program, improving the innovation process in Hong Kong.

92 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

3. Distribute resources to the stakeholders of each stage of innovation;314

5. Assess the commercial value of the fintech products and services developed from government-funded R&D projects.

314. Concerning the development of innovation, one of the models have differentiated innovation stages including R&D, demonstration, pre commercial (large scale demonstration), supported commercial (under generic support schemes) and commercial stages. Each stage should be supported by government policy intervention to facilitate the availability of investment and the development of technological inputs. At the same time, the analysis of market needs are also essential for innovation development. For more details, please visit Tim Foxon, Zen Makuch, Macarena Mata and Peter Pearson (2004). Innovation Systems and Policy-Making Processes for the Transition to Sustainability, pp.99-100. | http://userpage.fu-berlin.de/ffu/akumwelt/bc2003/ proceedings/096%20-%20112%20foxon.pdf

93 Financial sectors such as banks, other financial service providers, and SMEs are not always the main stakeholders that benefit from government funding. This implies that the government fund is not being allocated to generate financial support that reaches the whole fintech industry, in particular to entrepreneurs performing commercialization of technology products and solutions, i.e. the last stage of innovation. While it is unfair to evaluate the success of the funding programs based only on the size of the approved amount and successful projects, government departments should capitalize the government fund to achieve the policy and fund objectives to the greatest degree.

1. Disseminate information about the government fund to all stakeholders including academia, entrepreneurs, and general society;313

2. Increase the distribution of resources to the stakeholders not only from the R&D sector and academia, but also to applicants from the sectors of applied technologies and hard and soft infrastructure;

4. Set clear key performance indicators and internal audits to review and evaluate the effectiveness of the funding program;

Suggested actions for improving the effectiveness of public funding for innovation are:

313. The main actors in the innovation process are academia, entrepreneurs, government and society. Government funding may help private sector to overcome innovation process barriers which are mainly caused by lacking of financial resources to initiate and sustain innovation project. This would help uplift the effectiveness of the innovation process of the country or city. For more information, please visit Stanka Setnikar Cankar and Slovenia Veronika Petkovšek. | Private and Public Sector Innovation and the Importance of Cross-Sector Collaboration (Dec 2013). | https://clutejournals.com/index.php/JABR/article/viewFile/8197/8236 and Jevgenijs Leontjevs and Liena Ādamsone Riga. | Interaction of Main Stakeholders in the Innovation Process (2013). | https://ortus.rtu.lv/science/lv/publications/16719/fulltext

Incubators offer necessary resources including funding, advice, and business networks, for the early development of startups. Funding for incubators could come from the government, private investors, entrepreneurs, universities, and a particular industry.315 In Hong Kong, a number of local and global incubators are available for startups.316 They are funded and organized by different private companies and public organizations, and target general technological startups or specific industries.317 Hong Kong is one of the areas that have launched the Fintech Innovation Lab, a crossregion fintech program. Fintech Innovation Lab is supported by top global financial service firms and is meant to provide professional assistance to early-stage innovative fintech companies.318 Cyberport319 and HKSTP320 are the two main government-funded incubators. Specifically for fintech development, Cyberport has the biggest fintech ecosystem in Hong Kong and includes companies specializing in technologies like Opportunity 6

Objective: To attract not only local startups, but also startups from the Asia Pacific region to enable them to access Hong Kong’s comparatively rich resources. The initiative is expected to activate the flow of R&D and fintech talent as well as investments.

94 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

Observation: There are several local and global incubators in Hong Kong for startups. These incubator programs are funded and organized by different private companies and public organizations, and usually target either general technology startups or specific industries. The fragmented structure of fintech incubators has meant they have had less impact on the overall success of the Hong Kong fintech ecosystem.

action:Recommended Establish a centralized incubation funding system by consolidating the resources from public and private sectors.

315. My Business. | 3 ways business incubators can help startups. | https://mybusiness.singtel.com/techblog/3-waysbusiness-incubators-can-help-startups 316. For instance, Founder Institute, based in Silicon Valley, is carrying the mission to bring impacts and empower talents by funding and helping international technology companies. For details, please visit https://fi.co/ 317. For instance, azalvo is an incubator working with sustainable fashion and lifestyle startups in need of connections with business partners. For details, please visit https://www.azalvo.com/about/ 318. Fintech Innovation Lab. | https://www.fintechinnovationlab.com/about/ 319. Cyberport Incubation Programme offers up to US$65,000 to startups to execute their products and solutions. For details, please visit http://www.cyberport.hk/en/about_cyberport/cyberport_entrepreneurs/cyberport_incubation_ programme

320. Hong Kong Science and Technology Park’s Incubation Programmes mainly focus on biotechnology, technology and mobile applications. For details, please visit https://www.hkstp.org/en/innovate-with-us/incubation/

322. DATA.GOV.HK. | Cyberport Incubation Programme (2021). | https://data.gov.hk/en-data/dataset/cyberportcyberport1-data-on-cyberport-incubation-programme

The fragmented structure of fintech incubators has weakened their impact on the overall success of the Hong Kong fintech ecosystem. Therefore, to promote Hong Kong as the leading Asia Pacific fintech incubation hub, we suggest the creation of a centralized incubation funding system supported by Cyberport, HKSTP, the private sector (venture capital and angel investors), and the government.

To increase the impact of existing incubators, further coordination between each incubator and additional funding pools for fintech companies and startups (in financial services and other areas such as insurtech and wealthtech) are needed.

blockchain, mobile payments, cybersecurity, AI, big data, and program trading. 321 One hundred and thirty (130) applications were approved under the Cyberport Incubation Programme in 2020-21, with a success rate around 20%,322 indicating that the program is very competitive and not satisfying demand from startups.

We envision this centralized Fintech Incubation Hub would target both Hong Kong and Asia Pacific region startups to boost the region’s R&D and fintech talent and overall fintech ecosystem. A resource-centralized incubation program would significantly impact development of the fintech industry.

95 321. Legislative Council Panel on Information Technology and Broadcasting. | Annual Work Progress of Cyberport and the Cyberport Expansion Project (May 2021). | https://www.legco.gov.hk/yr20-21/english/panels/itb/papers/ itb20210510cb1-868-2-e.pdf

FintechHK%20Flyer_ENG_Jan%202021.pdf 326.

| ntries=SGP,JPN&viz=line_chart&years=1996,2018https://tcdata360.worldbank.org/indicators/GB.XPD.RSDV.GD.ZS?country=HKG&indicator=2013&cou

| https://www.info.gov.hk/gia/general/201910/24/P2019102400512.htm 328.

action:Recommended Review, evaluate and promote the tax deduction policy for expenditures by enterprises for eligible R&D activities. The definition of R&D activities should be broadened to different stages of innovation, including pre-commercialization, commercialization, and marketing.

Objective: To ensure that companies engaged in R&D activities are aware of the tax deduction to promote an increased level of R&D for fintech development.

323. The Business Time. | Fintech investment in Singapore more than doubled in 2019: Accenture (Feb 2020) | www.businesstimes.com.sg/garage/fintech-investment-in-singapore-more-than-doubled-in-2019-accenturehttps:// InvestHK. | FintechHK: Fast track your next success (Jan 2021). | https://www.hongkong-fintech.hk/media/ lyvgm41k/fintechhk-flyer_eng_jan-2021.pdf InvestHK. | FintechHK: Fast track your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/ Hong Kong Monetary Authority. | Hong Kong Financial Service Sector at a Glance (Feb 2021). | The HKSAR Government. | Press Releases: Hong Kong ranked world's third easiest place to do business (Oct 2019). The World Bank. Research and development expenditure (% of GDP, Hong Kong, Japan and Singapore are selected).

The Hong Kong fintech sector continues to grow along with the increased adoption of fintech among banks and the fast-growing fintech startup community. In 2019, fintech investment in Hong Kong nearly doubled to US$374mn across 25 deals compared with the previous year.323 Despite the pandemic, 41% of Hong Kong fintech companies successfully scaled up at Series A fundraising or higher.324 In addition, Hong Kong ranked as the most resilient economy in Asia for seven years in the past 11 years, 325 and was crowned the world’s top IPO venue.326 Hong Kong ranked 11th in the Global Innovation Index 2020 and was named one of the top three best jurisdictions worldwide to start, locate and scale a business.327 Although Hong Kong is recognized internationally for its accomplishments and resilience in economic development, it spends comparatively much less on R&D than regional competitors such as Singapore and Japan.328 Exhibit 21 shows that Hong Kong experienced a year-on-year average growth rate of 3.72% between the time period 1998 and 2018.

96 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

Opportunity 7

Observation: The Hong Kong government acknowledged the significance of R&D activities by enacting the Inland Revenue Ordinance 2018 to provide a tax deduction for expenditures by enterprises for eligible R&D activities, and to encourage more enterprises to conduct R&D activities in Hong Kong. However, the tax deduction policy has not achieved its intended effectiveness, as reflected by the low application rate for the tax deduction.

325.

kong_financial_service_sector_at_a_glancegov.hk/eng/key-functions/international-financial-centre/hong-kong-as-an-international-financial-centre/#hong_https://www.hkma. 327.

324.

effectiveness-rd-tax-incentives-oecd-economies 333.

The Inland Revenue Ordinance 2018 (the Ordinance) was enacted on 2 November 2018 to provide more tax deductions for expenditures incurred by enterprises in eligible R&D activities and encourage more enterprises to conduct R&D activities in Hong Kong. Under the Ordinance, enterprises would be able to enjoy additional tax deductions for expenditures incurred on domestic R&D activities. The first HK$2mn (US$257,000) of eligible R&D activities can enjoy a 300% tax deduction, and expenditures beyond this amount can enjoy a 200% deduction.329 There is no cap on the amount of enhanced tax deductions. However, the effectiveness of the tax deduction policy is questionable. As of November 2019, the Innovation and Technology Commission received 60 applications from enterprises claiming the R&D tax deduction, with a total HK$980.3mn (US$126mn).330 While it is not practical to assume that all corporates will perform R&D activities, the percentage of companies who applied for an R&D tax deduction is relatively low.331 With the intention of encouraging R&D, tax incentives are proven to be effective at stimulating business R&D, with every 1.4 units of R&D investment rewarded from 1 unit of R&D tax deduction support.332 In particular, compared with large-size companies, 333 329. Inland Revenue Department, the Government of the Hong Kong Special Administrative Region. | Deduction for Research and Development Expenditure (Apr 2019). | https://www.ird.gov.hk/eng/pdf/dipn55.pdf The Government of the Special Administrative Region, Press Release. | LCQ18: Enhanced tax deduction for research and development expenditures (Nov 2019). | https://www.info.gov.hk/gia/general/201911/20/ P2019112000350.htm?fontSize=1 331. As of Dec 2020, there were around 350 000 SMEs in Hong Kong. It is assumed that one tenth SMEs would perform R&D activities, there is just 0.17% of those SMEs have applied and successfully claimed the R&D tax deduction. For details, please visit Support and Consultation Centres for SMEs, Trade and Industry Department. Small and medium enterprises (SMEs). | https://www.success.tid.gov.hk/english/aboutus/sme/service_ detail_6863.html VOX EU. | Effectiveness of R&D tax incentives in OECD economies (Oct 2020). | https://voxeu.org/article/ Referencing to the definition of OECD economies, small firms are with fewer than 50 employees, medium-sized firms are with 50-249 employees, and large firms are with 250 employees or more. In Hong Kong, the enterprises employ fewer than 50 persons are regarded as SMEs. as

332.

% of GDP Source: World Bank

330.

1231996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016WorldHongSingaporeJapan2018KongMedian [ Exhibit 21 ] : Comparison of R&D Expenditures with Japan and Singapore

98 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong the tax deduction policy encourages small- and medium-size companies to spend more on R&D, which includes labor costs and consumables.334 Thus, the tax deduction policy is a positive policy intervention in general to encourage Hong Kong SMEs to invest and participate more in R&D, considering the fact that over 98% of enterprises in Hong Kong are SMEs.335 In view of the lackluster results the current tax deduction has had on qualified R&D activities, it is recommended the government consider regular evaluations on the effectiveness of the tax deductions policy. The Inland Revenue Department (IRD)’s judgement as to whether an R&D expenditure incurred is deductible is one of the key issues for an enterprise to consider.

337.

The government could increase company awareness as to which R&D activities are eligible for a tax deduction. Some ways could include: regular online and in-person seminars for accountants, consulting firms and enterprises that explain the tax deduction policy for eligible R&D activities. This would help the fintech industry identify and lodge claims for tax-deductable R&D activities.337 Talent Cultivation and Upskill Development

338.

336. KMPG. | Enhanced tax deduction for R&D activities in Hong Kong (May 2018). | https://home.kpmg/cn/en/ home/insights/2018/05/tax-alert-07-hk-enhanced-tax-deduction.html PwC. | The DIPN provides guidance and certain flexibility on reduction for R&D expenditure (Apr 2019). | https:// www.pwchk.com/en/hk-tax-news/2019q2/hongkongtax-news-apr2019-3.pdf HKTDC Research. | Financial Services Industry in Hong Kong (Feb 2021). | https://research.hktdc.com/en/ article/MzEzOTI4MDY3 Michael Page. | Hiring in Fintech – Survey and Dialogue. | https://www.michaelpage.com.hk/sites/michaelpage. com.hk/files/16785-hk_fintech_brochure_mp.v8.pdf

334. VOX EU. | Effectiveness

339.

336 There seems to be confusion in the fintech industry as to what activities quality for a tax deduction. Instead of having traditional R&D activities in earlier stages, fintech applicants might have qualifying R&D activities in the later stages of innovation (e.g. commercialization of fintech solutions, entrepreneur training, and product modification). Periodic review and clarification of eligible tax deductions will be essential to promote more R&D activities.

The financial and fintech industries are strategically important for Hong Kong’s economic growth and job creation. Despite being significant economic pillars and providing over 270,000 jobs in 2019,338 it is foreseeable that a fintech talent shortage will exist as the fintech ecosystem expands significantly in the near future. According to the Fintech Employment 2019 report, 95% of fintech companies in Hong Kong agreed that they were facing a severe shortage of fintech talent.339 of R&D tax incentives in OECD economies (Oct 2020). | https://voxeu.org/article/ effectiveness-rd-tax-incentives-oecd-economies 335. Support and Consultation Centres for SMEs, Trade and Industry Department. | Small and medium enterprises (SMEs). | https://www.success.tid.gov.hk/english/aboutus/sme/service_detail_6863.html

99 340. For more details, please visit ep4fa377c27c1649a6a219501ac8df30b7.pdf?sfvrsn=96c26d1d_6https://www.aof.org.hk/docs/default-source/hkimr/applied-research-report/aibdr

Finding qualified talent remains the biggest challenge for Hong Kong’s fintech sector, with the major barriers coming from domestic skills shortages, difficulties in attracting foreign talent due to fierce competition between different financial cities, and low diversity in job categories. Tam (2021) has compared job categories of AI and big data talent in Hong Kong and Singapore. It was discovered that 5 out of the Top 10 employers in Hong Kong hiring AI and big data talent are universities, while 8 out of the Top 10 employers hiring AI and big data talent in Singapore are from the financial industry.340 Hong Kong’s talent ecosystem is substantially less diversified than Singapore’s, and its less vibrant and unbalanced ecosystem is less attractive to both local and overseas fintech talent. Hong Kong’s regulators need to address the unique talent demands of fintech companies. Not only do they require researchers and experts in technology and data, they also need experienced management with financial services knowledge. According to findings from the Fintech Talent Development, Competency, and Manpower Study published by the HKUST Business School in 2020, compared with technical capability, there was a big gap in people capability, especially among middle-level management and juniorlevel personnel in the fintech industry. The percentages drop even lower to only around one-third of the required need. Therefore, it remains for the Hong Kong government to consider strengthening and upskilling the local fintech talent force for the financial sector. Suggestions on multi-pronged approaches to strengthen the fintech talent pipeline are discussed in the following section.

The STEM Internship Scheme, which is coordinated by the Innovation and Technology Commission, provides innovation and technology (I&T) internship opportunities for undergraduates and postgraduates who are enrolled in a full-time STEM program. A broad definition of I&T has been adopted in the scheme so that increased numbers of students can receive internship opportunities from a range of jobs with I&T elements.343

Unlike the optional STEM Internship Scheme, we suggest fintech students participate in a compulsory internship prior to graduation. All fintech and financial service companies would be encouraged to offer internship positions, and a government allowance could be provided to them. By evaluating the effectiveness of the STEM Internship Scheme, the fintech version could incorporate the best elements of the former and further capitalize on public resources for fintech industry development. The proposed scheme would facilitate even stronger connections between universities and the local fintech industry.

Similar to other fintech hubs, recruiting from local universities is one of the major talent pipeline channels in Hong Kong. Almost all universities in Hong Kong offer fintech-related undergraduate and postgraduate degrees.341 To cope with the growing fintech industry and to further narrow the talent gap, the fintech community has expressed the need for students to have first-hand experience in the industry. 342 Helping local students learn necessary skills is essential to the development of the fintech ecosystem. Further efforts are required to make the fintech industry more visible and accessible to students and new graduates before they enter the job market.

342. Interview with The Advisory Board of the Fintech Research Project, dated 9 April 2021.

Objective: To equip fintech students with the skills and knowledge that match the needs identified by the fintech industry. The fintech industry will become more visible and accessible to students and new graduates before they enter the job market. This initiative may help narrow the fintech talent gap in the future and sustain the fintech talent pipeline for Hong Kong.

Observation: Nearly all universities in Hong Kong offer fintech-related undergraduate and postgraduate degrees. How to provide local students with the required fintech skills will be very significant to the future development of the fintech ecosystem. The fintech industry has expressed their concerns on the importance of hands-on experience for fintech graduates.

100 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Opportunity 8

action:Recommended Create a compulsory internship scheme specific to fintech students to meet future market demand.

341. The University of Hong Kong (HKU), The Hong Kong Polytechnic University (PolyU), Hong Kong Baptist University (HKBU), The Chinese University of Hong Kong (CUHK), City University of Hong Kong (CityU), the Hong Kong University of Science and Technology (HKUST), the Open University of Hong Kong (OUHK) and the two private universities namely, the Hong Kong Shue Yan University (HKSYU) and the Hang Seng University of Hong Kong (HSU) offer undergraduate degrees related to fintech. For postgraduate degrees, CUHK, CityU, HKUST, HKU and HKBU offer fintech masters programs and PolyU has launched the first doctoral degree in fintech in 2019.

To establish a more robust fintech talent pipeline, we propose that a compulsory internship scheme specific to fintech students is created. This would not only result in companies having earlier access to talent and be able to train them according to their needs, it would also provide students and graduates with more opportunities to master the technical and soft skills required, and build career networks for their future.

343. Innovation and Technology Commission. | STEM Internship Scheme. | https://www.itf.gov.hk/en/fundingprogrammes/nurturing-talent/stem-internship-scheme/

Technology is changing the nature of work and is driving the demand for new and emerging skills. The World Economic Forum published the Future of Jobs Report 2020 and highlighted the pressing need for large scale reskilling of the workforce. According to the report, around 40% of workers will require reskilling, and over 90% of business leaders expect employees to pick up new skills on the jobs.344 Being one of the world’s leading financial centers, Hong Kong is no exception. Effective government policies will help ensure that Hong Kong’s current fintech workforce has the skills to cope with the fast-changing global talent demand. According to the Talent Development Survey 2019 conducted by the Hong Kong Institution of Bankers, 97% of those surveyed believed that banking practitioners should enhance their fintech capabilities. 345 In addition, 47% of fintech companies agreed that the lack of proven job skills is the major challenge for talent recruitment.346 In view of this, the Hong Kong government has launched various fintech upskill training programs to enrich the existing fintech talent pool. For example, the Cyberport Financial Practitioners Fintech Training Programme has received an overwhelming number of applications, reflecting the high demand for recognized fintech qualifications in the market.347

action:Recommended Establish a stronger certification link between Continued Education Fund (CEF), Qualification Framework (QF), and the internship scheme so as to offer on-the-job training opportunities to the existing workforce to help meet current market demand.

344.

Objective: A stronger certification link would attract more people to augment their fintech skills through participating in CEF courses that are registered under QF, and help meet local fintech talent market demand. Embedding internship opportunities for CEF students would give them the skills necessary to work in the fintech industry, which is especially beneficial for students who were originally working in different sectors.

Observation: Continued Education Fund (CEF) and Qualification Framework (QF) are readily available for fintech courses, but not all fintech courses are reimbursable under CEF and/or are registered under QF.

101 Opportunity 9

In addition, the social distancing measures of 2020-21 have intensified the challenge of upskilling financial executives, as the digital transformation of the financial industry has come faster than expected. SMEs with insufficient resources and budgets will find it harder to upskill the financial skills of their personnel. World Economic Forum. | The Future of Job Reports 2020 (Oct 2020). | http://www3.weforum.org/docs/WEF_ Hong Kong Institute of Bankers. | Talent Development Survey 2019 (2019) | http://www.hkib.org/ Fintech Survey Dialogue. https://www.michaelpage.com.hk/sites/michaelpage. over 49 institutions have registered in the Cyberport Financial Practitioners Fintech Programme. details, https://pages.cfte.education/cyberport-fintech-training

pdf/1587977354_HKIB%20Talent%20Survey%202019%20Full%20report.pdf 346. Michael Page. | Hiring in

–

For

Training

please visit

and

com.hk/files/16785-hk_fintech_brochure_mp.v8.pdf 347. Over 2,000 people and

Future_of_Jobs_2020.pdf 345. The

349. Continuing Education Fund. | Reimbursable Course (Fintech and financial technology were searched) (2021). | Community College reference, all fintech short courses (study

period from 5 hours to 4 months) are not reimbursable through CEF. For details, please visit AAYAiAAEgLvJPD_BwEaccounting-and-finance/fintech-and-financial-intelligence?gclid=EAIaIQobChMI-fGc2e_m8AIVMylyCh3NjwzsEhttps://hkuspace.hku.hk/cht/interest/ 351. Qualifications Framework. | QF-Recognized Qualifications (Sep 2018). | https://www.hkqf.gov.hk/filemanager/ en/share/leaflet%20(QF-recognised%20qualifications)%20e.pdf 352. Qualifications Framework. | Qualifications Search. | https://www.hkqr.gov.hk/HKQRPRD/web/hkqr-en/search/ qr-search/

Having a centralized platform for providing training information related to the fintech industry could be organized by the Committee as one of the initiatives that would sustain the fintech talent pipeline.

As much as the fintech sector would like to recruit people with prior fintech work experience, this is often not possible. Therefore, adding internship opportunities in the CEF reimbursable courses would help increase the number of experienced individuals.

102 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong

In addition, adding more CEF reimbursable fintech courses would increase the incentive to study. As of May 2021, there are 16 CEF reimbursable courses available, and nearly all of them are required modules for bachelor’s and master’s degrees.349 None of the short or day-long fintech courses are currently CEF reimbursable. However, it would be practical to include them,350 as these would very likely be the only choices available to people who work and can only attend classes outside of their work hours.

All fintech and financial services companies would be encouraged to offer internship positions for CEF students, as well as for students in the internship scheme mentioned in Opportunity 8.

Currently, there is no dedicated government department or industry association that provides centralized information on available fintech-related training for those who are eager to shift into this industry. A complete picture of course options and a clear understanding of how the skills and competencies being taught would be classified under the Qualification Framework are much needed.348

time, the government could encourage civil servants to participate in big data, AI or data analytic training programs to raise their awareness when they do policy making. Banks and other financial institutions could also provide fintech training facilitation to senior management to promote a culture that embraces the beneficial uses of technology. Certified courses and training programs linked to QF would incentivize their participation in the upskilling courses and programs.

Furthermore, there is no official standard to certify fintech qualifications for practitioners who want to upskill. But seeing how relevant learning is to market needs, we suggest the government facilitate fintech course registration, as recognized under the Hong Kong Qualifications Framework (QF).351 There are currently 18 fintech courses registered under QF, and most of them are courses under full-time bachelor degree or above programs.352

348. One of the policy intents of Qualification Framework is to ensure the relevancy of learning to industry needs. For details, please visit https://www.hkqf.gov.hk/en/home/index.html

name=&institution_code=&course_name=fintech&course_code=&course_fee=&qr_number=&qf_level=https://www.wfsfaa.gov.hk/cef/en/preparation/course_search_result.php?area=&institution_ 350. Use HKU SPACE

Fintech companies, CEF students and Hong Kong in general would benefit by enhancing CEF fintech courses with recognition under the QF and incorporating internship as a Atrequirement.thesame

action:Recommended To proactively and regularly review and evaluate the overseas talent scheme and allow more flexibility for fintech companies to hire overseas fintech talent. For example, allowing more overseas talent to work remotely for Hong Kong fintech companies without having to be physically stationed in Hong Kong could help increase the number of overseas talent hired.

As talented people contribute large economic value to the places where they are living and working, attracting them is one of the prominent policies of all developed economies.353

Objective: To ensure Hong Kong can compete in the global environment to attract and retain fintech talent for both the city’s short-term and long-term fintech talent supply.

The Hong Kong government could help increase the numbers of overseas talent by regular reviews and evaluation of the overseas talent schemes. Fintech firms would likely benefit from more flexibility in the schemes, especially TechTAS, including allowing them to hire overseas talent for remote work, without requiring that the talent physically relocate to Hong Kong.

With regular and frequent engagement with the financial and fintech sectors, and the development of flexible and effective talent schemes and immigration policies, the Hong Kong government can ensure the city remains globally competitive by developing, attracting and retaining top fintech talent for the industry’s short- and long-term needs.

103 353. Solimano, Andres. | The International Mobility of Talent and its Impact on Global Development (2006). | https:// ideas.repec.org/p/ess/wpaper/id3063.html 354. DATA.GOV.HK. | Statistics on Applications Approved under “Technology Talent Admission Scheme” (As of 2020). | https://data.gov.hk/en-data/dataset/hk-immd-set4-statistics-applications-approved-techtas 355. Even there are projected 1,600 fintech graduates in 2024 in Hong Kong, the local graduates will not meet the market demand. For details, please visit South China Morning Post. | Addressing the fintech talent gap (Aug 2020). | addressing-fintech-talent-gaphttps://www.scmp.com/presented/news/hong-kong/education/topics/new-normal/article/3098761/

Currently, there are four talent admission schemes in Hong Kong that target skilled labor with different expertise from overseas and Mainland China. A specific immigration scheme, the Technology Talent Admission Scheme (TechTAS), was launched in 2018 to target technology talent. However, as of 2020, there were a total of 215 approved applications across two-and-a-half years.354 The applications approved under TechTAS have not been able to fill the city’s demand for people skilled in technology.355

Opportunity 10 Observation: A specific immigration scheme, the Technology Talent Admission Scheme (TechTAS), was launched in 2018 to target technology talent. However, the number of applications approved under the Scheme are not sufficient to meet the city’s demand.

The 10 opportunities covered in this section of the report can help Hong Kong develop a roadmap upon which we can accelerate the city’s standing as a leading global fintech hub. With the support of government, industry and academia, we can solidify Hong Kong’s position as a sustainable and vibrant international financial city and global fintech hub.

The global pace of fintech developments is both an opportunity and a threat to Hong Kong’s standing as a premier international finance center. Companies and customers are increasingly looking to stay ahead of the curve in terms of technology adoption and service offerings. Hong Kong has an opportunity to maintain its competitiveness within the global financial market, if it can rapidly scale and deepen the breadth of the fintech environment available to all stakeholders, including financial institutions, SMEs, startups and customers.

104 Part II: Key Observations, Policy Implications and Recommended Actions for Hong Kong Conclusion

105

https://www.bm.ust.hk