Fintech companies, including blockchain and cryptocurrency businesses, should be regulated under existing financial regulations, the Hong Kong Stock Exchange (HKEX) has suggested in a new report, published October 18.
The 26-page document, written by HKEX’s Chief China Economist's Office and Innovation Lab, “focuses on blockchain and AI applications in the securities industry and explores how these new technologies could be integrated in the areas of investment, trading, clearing and settlement, as well as regulation, with a view to find specific feasible applications of Fintech in the capital market”. The report also explores in detail how these new businesses need to be regulated, arguing that a “consistency principle in financial regulation” should be maintained.
“The consistency principle means that financial businesses of the same nature should be subject to the same regulation,” the report reads. “Financial services, be they offered in a virtual or real environment, should be governed by the same legal framework. This will ensure fair competition and prevent regulatory arbitrage.” However, the document acknowledges that the regulatory framework should be continuously updated in order to keep up with the fast-moving fintech industry and avoid any possible regulatory loopholes.
The report also discusses the so called “fintech supervisory sandbox” (FSS), used by some countries to test fintech projects. HKEX believes this is an effective tool to facilitate the application of financial technologies such as blockchain.
The report mentions the efforts of the UK’s Financial Conduct Authority (FCA) on that front, noting that it was the first was the first regulator in the world to introduce FSS in the regulation of blockchain technology.