First published in Asian Legal Business.
Financial technologies (FinTech) have the potential to supplement or disrupt the financial services industry, with internet banking and mobile payment applications as obvious early examples. As offshore centres press forward with ambitions to be leading regional technology hubs, FinTech is an important point of focus, both for market participants and for regulators.
There has been a marked uptake of the utilisation of technologies within the financial services sector, principally in the fast-growing areas of blockchain, artificial intelligence, and cloud technology in financial institutions in Asia. This growth has been fuelled by investment from China into the Greater Bay Area (which includes nine cities in mainland China, Hong Kong and Macau) and the Belt and Road Initiative. China has also recently introduced a series of cybersecurity and data protection regimes which will inevitably affect the operation of the banking and finance sector.
In parallel, another interesting trend in Asia has been the emergence of virtual banks. The Hong Kong Monetary Authority has recently granted eight new digital-only upstarts with virtual banking licences. Currently, the retail market is dominated by a few key players who have greatly benefitted from Hong Kong's wealthy customer base and high population density, which lends itself to retail banks operating with relatively few branches. It will be interesting to see how and to what extent the retail banks will rise to the competition and whether the virtual banks will take a significant share of the deposits from the retail banks in the future. We expect in any event, an increase in investment in technology from the retail sector to keep abreast of the fast-paced innovation from key players such as Ant Financial and Tencent, who are reportedly one of the backers of the new virtual banks launched in Hong Kong. Digital-only banks are also developing in other parts of Asia such as India and South Korea as well as across Europe. A trend which we expect to see develop over the next few years.
With the high amount of activity in the FinTech market and with cross border initiatives such as the Greater Bay Area and the Belt and Road, this is an excellent springboard for offshore vehicles. Offshore jurisdictions are historically quick to adopt and/or refine legislation as they strive to be major technology hubs. In particular, the offshore market is seeing more structures being utilised for technology projects, an increase in the use of offshore vehicles to launch security or other asset-backed tokens and increased amounts of advisory work for regulatory compliance, e.g. reporting requirements and disclosure, data protection, tax filing and transparency and economic substance requirements and filing. Offshore structures in projects for the Belt and Road Initiative will continue to be prominent, along with more structured offshore products, repackaging and securitisation.
These opportunities introduce new risks and give rise to new legal, governance and regulatory issues which require careful consideration before the technology's full potential can be realised. There has also been an increased focus on regulatory compliance, global convergence on regulatory requirements relating to data protection and disclosure. The performance of the Chinese economy will have an effect on the Asia Pacific region as a whole, which will create new challenges and opportunities along with it. Offshore jurisdictions such as Bermuda, the British Virgin Islands and the Cayman Islands have continued to implement various global standards and regulations promulgated by the UK, US and the EU which puts these jurisdictions in a strong position for the near future. These include but are not limited to clarity around how businesses need to demonstrate adequate economic substance and reporting standards such as OECD and BEPs.
With an extensive range of expertise, Appleby's Banking & Financial Services specialists provide comprehensive, practical and commercially minded legal advice on all matters related to banking, international real estate, asset, project and other financing matters.
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