Hong Kong and Singapore neck and neck for regtech adoption

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The Hong Kong Monetary Authority (HKMA) launched Regtech Knowledge Hub to raise awareness of regulatory compliance in fintech-related areas and encourage expertise sharing. In a similar move last year, the Monetary Authority of Singapore earmarked SGD42 million (about $35.5 million) for grant programs aimed at boosting digital adoption and regtech.

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

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

Etelka Bogardi

“Promoting regtech is one of the highlights of the HKMA’s broader support for fintech adoption in Hong Kong,” said Etelka Bogardi, partner at Norton Rose Fulbright in Hong Kong. Review of business law in Asia. “What has been particularly impressive is HKMA’s close engagement with the industry and the continuous delivery of practical and actionable information.”

Bogardi said that the Regtech Adoption How-to Guide Series was an example of the information provided.

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

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

For lawyers wishing to stay abreast of regtech developments, Bogardi noted two challenges:

    1. the need to stay current with developments and the sheer number of applications and vendors; and,
    2. develop a basic understanding of the underlying technologies and how these can be leveraged while ensuring compliance.

“It is likely that we will see a sea change in the use of regtech solutions, moving from quantitative use cases to more qualitative use cases,” she said. “There is a big leap between regtechs such as optical character recognition and the use of artificial intelligence-based systems for the entire risk management process in banks. This will raise interesting and challenging questions for regulatory and data lawyers.”

In other parts of Asia, Taiwan, Japan, and South Korea have also taken steps to show interest in developing regtech solutions. However, deep financial markets and large pools of investors interested in new financial products and services allow Singapore and Hong Kong to lead the way in supporting regtech.

Hong Kong and Singapore on the run for regtech adoption, Bryan Tan
Bryan Tan

Bryan Tan, Partner at Reed Smith in Singapore, said: “Regtech has naturally been introduced into financial services in Singapore and – to a lesser extent – ​​into the legal industries, as it was hinted at a few years ago.

“We also note that the region has attracted more venture capital investment recently,” Tan said.

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

“The nascent phase of a new technology is always the selection of the final form – think of the video format wars,” Tan said. “So the problem may be that there are too many offers and too many offers are not fully developed. In this crowded market, it is possible to be overwhelmed with choices and the tendency is to stay aloof, paralyzed by choice.

With thousands of regtech providers currently available, Tan is especially bullish on solutions that get updated information from a variety of sources for compliance teams.

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

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