Similar Regulatory Framework
In a 26-page research report titled: “Financial Technology Applications And Related Regulatory Framework,” the HKEX, noted that since Fintech and blockchain technology are utilized by a vast array of financial institutions including the capital market, trading, it is, therefore, essential for Hong Kong to apply the same rules that govern its traditional finance system to its cryptospace.
The report also argues that with crypto and Fintech-based businesses evolving at a superfast pace, there is a possibility that these businesses may not reduce or eliminate the risks in the financial system but rather, may increase or expose new forms of financial risks.
Amidst that backdrop, HKEX made it clear that there is a need for regulators to formulate an appropriate regulatory framework that would encourage the use of Fintech innovations in the securities industry while also reducing the risks.
The HKEX report argues that it is very essential for Hong Kong to follow in the steps of forward-thinking nations and set up a “supervisory sandbox” for testing new financial technologies, as this system drastically minimizes the negative impact of these nascent technologies.
“Once the risks and issues encountered in the trial have been eliminated or resolved, and the protection of customers’ interests and the smooth operation of the financial system are ensured, the Fintech could be extended to a broader scope,” the report declared.
Consistency Principle Applies to Fintech and DLT
Importantly, the report stated categorically that it is critical for regulators to apply “consistency principle” in regulating the DLT space.
It describes the consistency principle as a system whereby financial businesses of the same nature are governed by the same rules and legal framework.
It further added that this system would foster fair competition and eliminate regulatory arbitrage provided the regulatory framework is continuously upgraded to avoid being outpaced by new Fintech developments and give room for possible regulatory loopholes.