Hong Kong Stock Exchange Suggests That FinTech Firms Follow Current Financial Regulations

Deciding the regulations to apply to cryptocurrency and blockchain has been an ongoing struggle in many countries, but the Hong Kong Stock Exchange (HKEX) believes that they have an option. According to a recent research report, the HKEX brought up the idea that any fintech firm, whether they deal in traditional or cryptocurrency, would be most appropriately handled with the current financial regulations.

The report, which was published on October 18th, allowed the HKEX’s Chief China Economist's Office and Innovation Lab to mainly examine the extent that blockchain and AI could reach in finance. The research also reviewed the use cases that blockchain technology can be applied to in trading, along with settlement and equities markets.

Nascent technologies, like blockchain, could be “integrated in the areas of investment, trading, clearing and settlement.” Regulations should be a connection point between these different types of technology and anything in the financial industry.

Various jurisdictions may concern the technologies, depending on the use cases that they find. However, the authors of the research report suggest a “consistency principle,” which would basically mean that “financial businesses of the same nature should be subject to the same regulation. The principle of consistency requires that … the issuance of digital currencies and digital funds must be governed under the existing securities regulatory framework.”

The authors added,

“The public fund-raising activities of shares issuance by issuers — which do so with merely a prospectus published on the internet but without any underwriter nor compliance with the IPO registration procedures or strict disclosure requirements — must be rectified by subjecting them to the governance by the Securities Law.”

By putting related financial services under the ruling of these laws, it would “maintain fair competition, ensure regulatory effectiveness and prevent regulatory arbitrage.” However, that doesn’t mean that the decision wouldn’t come with some concerns, like the ever-changing atmosphere of fintech that could cause some “loopholes” in the regulation. In order to keep up with the technology, the regulations would need to constantly undergo changes to keep up.

The release of this report came around the same time that the Financial Action Task Force had told the publish that they’d be creating new rules for international currency regulation. These regulations aren’t due to go into effect until June 2019, but they would ensure that any country that wants to be involved would be required to license their entities for the Initial Coin Offerings.

In March, HKEX was part of a discussion with the Australian Securities Exchange (ASX) to learn about their migration to a blockchain settlement system.

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