- The Consumer Council (the Council) of Hong Kong welcomes the opportunity to respond to the consultation document “Global Financial Innovation Network (GFIN)” issued by 12 financial regulators and related organisations around the world, including the Hong Kong Monetary Authority (HKMA), in August 2018.
- The Council in general supports the establishment of the GFIN which is building on UK Financial Conduct Authority’s idea of a “global sandbox” and sets out below its views to the specific questions raised in the consultation document that have direct implications to the interests of consumers.
Q1: Do you agree with the proposed Mission Statement for the GFIN?
- The Council is pleased to note that the proposed Mission Statement of the GFIN has included “consumer wellbeing and protection” as one of its advancing areas through working jointly on emerging policy issues and facilitating responsible cross-border experimentation of new ideas. The Council is of the view that “consumer wellbeing and protection” is of utmost importance in responsible innovation and the development of GFIN. Moreover, the Council agrees promoting “competition” and “financial integrity” as proposed are vital for the sustainability of the marketplace. The Council also appreciates the GFIN would aim to advance “financial inclusion” which allows broader variety of financial services available and accessible for consumers, regardless of their economic status, to choose from.
- The Council understands the current positioning of the GFIN is a “collaborative policy and knowledge sharing initiative”. Given the rapid development of emerging technologies and business models in financial services which have already reached beyond traditional and jurisdictional boundaries and caused cross-border consumer protection issues, the Council considers it important for the GFIN to equip with adequate resources to study the impact of technological innovation to consumers and the marketplace, to monitor its developments and to develop action plan to achieve the objectives of “consumer wellbeing and protection”, “competition”, “ financial integrity” and “financial inclusion”.
Q2: Do you agree with the three main proposed functions for the GFIN?
- The Council supports the three main proposed functions for the GFIN (i.e. acts as a network of regulators, provides a forum for joint policy work and regulatory trials, and facilitates cross-border firm trials) that there would be an overall improved level of service, experience and integrity for consumers. Through the GFIN, regulatory authorities can synergize in the development of policy and regulation, which offering the industry a more accessible and well-framed platform to develop and market products.
- Noting that there is close collaboration between regulators, innovative companies and other relevant stakeholders, the Council views that an effective mechanism to communicating with consumers, such as through the interface with consumer bodies, is necessary so as to keep them informed of the latest financial innovation solutions. Bringing into the perspective of consumers, the exchange of experience and views could be enhanced and internalized in the process.
Q3: What aspects/areas of regulation pose the biggest challenge when it comes to innovating?
- Regulation requires time to legislate or to put into effect, which is often lagged behind the rapid pace of technological innovation. Whether the regulators have sufficient awareness, knowledge and expertise to study, monitor and supervise the emerging developments would be a significant challenge.
- Besides having to be sensitive to the ever-changing technology, regulators are also required to help consumers understand the complexity of the emerging financial innovation solutions. To better understand the risks and returns of the innovative products and services in which they are interested, consumers require timely dissemination of up-to-date and easily understood information for reference. The Council firmly believes that the primary goal of bringing in innovative technology should be for pursuit of human well-being, but not solely for the sake of increasing profitability of the traders.
- Cross-border disputes are harder to address when different jurisdictions are involved. To expedite a more efficient global financial services system and manage risks more effectively, developing a referral mechanism (in addition to support firms to scale their idea internationally) between different jurisdictions will be necessary.
Q4: Do you see any reasons why this initiative may be counterproductive to the outcomes it is seeking to achieve?
- Although GFIN facilitates innovative ideas to be brought to international markets, local regulatory authorities other than GFIN members have to acquire new expertise and lead-time to adapt to new landscape and devise new ways of cooperating. The disparity in readiness would demand the GFIN to compromise on the standards and pace of development.
Q5: Do you believe the issue of developing a best practice for regulators when assessing financial innovation should be a priority for the network? If not, what other priorities should the network first address?
- The Council agrees the issue of developing a best practice for regulators when assessing financial innovation should be a priority for the network.
- The Council supports financial innovation but reiterates the importance of maintaining and having adequate consumer protection safeguards are built into new products or services since any failure of such may run the risk of diminishing consumer confidence in the financial services system. The development of a best practice will therefore be useful in leading the works of different regulators.
Q6: Do you agree with the approach to involve global standard setting bodies as part of the GFIN? How else would you like to see these organisations involved?
- The Council agrees that involving relevant standard setting bodies as part of the GFIN is beneficial in sharing experience and providing advice.
Q7: What kind of outcomes from the policy work and regulatory trials would your organisation benefit from?
- The Council welcomes joint work of multiple regulators and publication of findings from cross-border trials and market studies on common areas of interest. Sharing results of work, assessing applicability to the local setting and consulting local stakeholders including consumers would encourage and enhance communication with the local community to understand and discuss the emerging issues.
Q8: Would the cross-border trials be of interest to your organisation? If so, could you provide any potential example use cases?
- The Council agrees trialing new ideas with consumers in multiple jurisdictions would ensure potential benefits of financial innovation are shared across jurisdictions. Besides, the Council finds experience sharing of financial service regulators useful to learn market situation and consumer issues of other jurisdictions. Cross-border transaction and identity verification will become more common and frequent, a close collaboration between different jurisdictions on cross-border financial services will be expected to facilitate seamless handling of related matters. The Council sees the experimentation and regulation of these financial innovations as potential illustrative materials for consumer education.
Q9: Do you agree with the proposed approach to managing the application process for cross-border trials?
- Given that the application process for cross-border trials appears to have no direct implication to the interests of consumers, the Council does not comment on Q9. However, for realising the objectives of the GFIN, it is suggested that both timeliness and transparency of the application process must be ensured.
Q10: [For regulators] Do you anticipate any challenges with the proposed approach to managing the application process, or conducting cross-border trials?
- The Council has no comments on Q10 which is a question for regulators.