The East is Digital

The East is Digital

November 20, 2019

These past few weeks have seen plenty of opportunity for insight into fintech developments in Asia. Currently the Singapore Fintech Festival is wrapping up five jam-packed days of events, following right after Hong Kong Fintech Week. Yet for this writer, the most impactful recent lessons about fintech in Asia came from a financial practitioners conference, and that event sent the definitive message that when it comes to identifying global leaders in new technology applications, it is the East that is Digital.

While Hong Kong was hosting its Fintech Week, CQAsia was up the road in Shenzhen hosting its annual event. CQAsia is the Asian branch of the Chicago Quantitative Alliance (CQA,) an association of practitioners of quantitative finance. This year for the first time CQAsia held its annual conference in mainland China instead of Hong Kong. While most of the Asia-based members of CQAsia are familiar with mainland China’s digital capabilities and leadership, many of the international visitors were in for an awakening.

By now people in Asia are used to the surprise Europeans and North Americans evidence when they see the ease of use and broad acceptance of China’s electronic payment platforms, and how these fit carefully with other aspects of Chinese life. This was driven home when the organizers of the CQA parent entity planned to use their regular website arrangement to take bookings for the event, only to be told that no one in China would use a credit card over the internet. The suggestion that the system be amended to use the normal QR-based online payment systems left the CQA team scratching their heads.

But the fact that China, and Asia in general, are already well ahead of North America and Europe in fintech development is old news. Where the gap will go from here is the key question. Insight into this was provided by the conference’s venue providers, a group that runs an incubation facility for both quantitative hedge funds and fintech startups. Spread across four floors in a top-quality building, and outfitted to incredibly high standards, this incubator platform greatly impressed the overseas visitors. They were curious as to exactly how many fintech startups this group was working with though to justify this massive space. They were shocked to hear the answer — 200.

After several iterations back and forth before the visitors could accept the answer, they finally accepted that this incubator was working with some 200 different fintech startups. Even after it was made clear that this was not a translation error (eventually the number was written on a whiteboard, just to make it completely clear) the overseas guests could not comprehend how one incubator could be working with 200 different fintech disruptors.

China’s mobile payments systems and their leapfrogging of traditional banking services has led the way for true disruption across Chinese banking. While western banks are looking to improve efficiency in current practices, Chinese firms are able to focus first on customer needs and build new solutions from the ground up. This freedom allows for a broad breadth of new business opportunities in China’s fintech space.

While the rest of Asia has not (yet) managed as great a leapfrog as has China with its payment systems, other regional successes, coupled with our proximity to China, leave the region keen to push the envelope. This can be seen here in Hong Kong, where earlier this month in a Fintech Week preview the Securities and Futures Commission (SFC) announced a new regulatory framework for virtual asset trading platforms. Their approach is, perhaps somewhat unusually for a regulator, one of flexibility, allowing for an opt-in decision for exchanges that trade at least one token linked to a security or futures produce that is eligible for SFC oversight. Exchanges can decide for themselves if they will benefit from SFC oversight and cooperation. This is likely at least partially due to the limited control the SFC will hold over digital exchanges. As the virtual asset trading platforms are not recognized as regular exchanges, the SFC’s ability to take legal action will be limited.

This sensible and flexible approach is a hallmark of the region’s approach to fintech and digital assets. Other examples can be seen in Singapore’s thoughtful approach to its regulatory sandbox. Australia, Malaysia, and Thailand are also using a sandbox approach to search out the right balance of regulation and opportunity.

Hong Kong’s new rules are definitely focused on protecting the end investor and maintaining Hong Kong’s reputation for clean financial operations. Amongst the key topics addressed were know-your-client (KYC) controls, anti-money-laundering (AML) regulation, and most importantly for Hex Trust, a strong focus on proper custody safeguards of customer assets, along with expectations for auditability and accounting.

This is ultimately a key message from the Asian experience with fintech. To make the most of these new technologies requires a thoughtful and sensible flexibility from regulators and governments, yet all the while these groups must maintain a strong focus on what really matters — the protection of all market participants, and particularly the end-, retail investor.

By adopting sensible approaches to deliver on this protection and evidencing a willingness to develop new approaches toward this end, Asia’s governments are doing their part to help drive new fintech efforts and deliver the benefits to Asia’s consumers and economies. This can be seen directly from the top in the recent announcement from Chinese President Xi Jinping that blockchain development would be supported by the government, saying that blockchain would play “an important role in the next round of technological innovation and industrial transformation.”

With this type of backing and sensible support from regulators, it is easy to see how a single Shenzhen incubator can host 200 fintech startups. As with any incubator in any region, many of these nascent firms will of course fall by the wayside. However the better than average business environment that has generated this herd of startups will very likely help a good number of these gain traction and grow. With a similarly positive business environment across Asia, it is easy to see how overseas visitors will continue to be surprised by the region’s fintech leadership. Despite that surprise, with the right mix or technical talent, Leapfrog Effect opportunities, and sensible regulatory cooperation, it is easy to see that Asia is the fintech leader, and that the East is Digital.

If you’re an asset manager in Hong Kong, or hold digital assets, and would like to know how Hex Trust can help you, please reach out to us: enquiries@hextrust.com

About Hex Trust

Hex Trust is the Asian leader in enterprise-grade custody for digital assets. Led by innovators from the institutional financial services space, Hex Trust has built a proprietary platform that delivers a modern custody solution for financial institutions, asset managers, and corporations to safely and efficiently operate in the blockchain ecosystem. ZeroKey(TM), a proprietary technology, enables seamless transacting and fast access to assets stored on multiple blockchains while maintaining the highest levels of security of cold storage solutions. As a registered Trust Company under the Hong Kong Trust Ordinance and holding a Trust or Company Service Provider (TCSP) license under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Hex Trust offers a truly end-to-end digital asset servicing solution. Visit www.hextrust.com to learn more.

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