Regulatory move a boost to financial innovation

That the Hong Kong Monetary Authority (HKMA) finally issued the city’s first batch of licenses for stored value facilities (SVF) operators is of significance in at least two ways. For years, SVF service providers in the city have been operating in a kind of regulatory grey area. This is not their fault but simply due to the absence of a licensing system that matched the nature of their business. Thursday’s issuance of the first batch SVF licenses has in effect eliminated the regulatory gap that previously existed in relation to the operation of SVFs.

With the award of those licenses, the new regulatory framework for SVF and retail payment systems (RPS) was formally activated — a year after it was introduced by the Clearing and Settlement Systems (Amendment) Bill 2015, which was passed by the Legislative Council last November. Before this, RPSs have been operating under a voluntary code of practice. By subjecting the likes of Octopus, such as Alibaba’s Alipay Wallet and Tencent’s WeChat Pay, to mandatory regulation by the HKMA, their business operations will become more transparent and the interests of consumers will be better protected. In other words, proper regulation will ensure the healthy development of this segment of financial services.

But of more significance is that the regulatory initiative will help accelerate financial innovation in the city. It is widely expected that Alipay and WeChat Pay will launch their versatile and convenient mobile payment systems here in Hong Kong soon after each of them secured an operating license on Thursday. Competition — expected to be brought by the two mainland e-commerce giants and other international players as well — aside, their innovative ideas, creativity and technological resources, which have been proved to be inexhaustible with their operation in the mainland market, are likely to trigger a big leap in the development of financial innovation and e-commerce in Hong Kong. The new regulatory move is long overdue — but better late than never.