Source: Securities and Futures Commission
The Securities and Futures Commission (SFC) today issued a circular announcing the launch of the SFC Regulatory Sandbox to provide a confined regulatory environment for qualified firms (Note 1) to conduct regulated activities utilising financial technologies (Fintech).
The sandbox aims to enable qualified firms, through close dialogue with and supervision by the SFC, to identify and address any risks or concerns associated with their regulated activities before their services can be provided to the wider public in Hong Kong.
“The SFC recognises that firms utilising innovative technologies may broaden investor choice and benefit the Hong Kong financial services industry,” said Mr Ashley Alder, the SFC’s Chief Executive Officer. “For the sake of market integrity and better investor protection, the sandbox provides a confined regulatory environment for qualified firms to demonstrate the reliability of their Fintech solutions as well as their internal control systems at the initial stage.”
In the sandbox environment, qualified firms will be under closer monitoring by the SFC. To minimise risk exposure to investors, the SFC may impose licensing conditions such as limiting the types of clients these firms serve or each client’s maximum exposure (Note 2). In addition, they are expected to have adequate investor protection measures in place.
The circular emphasises that the sandbox should not be viewed as a means to circumvent legal and regulatory requirements. If the SFC considers that a firm operating in the sandbox is not fit and proper to remain licensed, its licence may be revoked.
The SFC also issued a separate circular to clarify its approach in assessing the relevant industry experience requirement for individuals including those with technology expertise applying to be responsible officers.
To be qualified to enter the sandbox, a firm must be either a licensed corporation or a start-up firm which intends to carry on a regulated activity. It must be fit and proper, utilise innovative technologies and be able to demonstrate a genuine and serious commitment to carry on regulated activities through the use of Fintech. The firm’s establishment or its activities should also increase the range and quality of products and services for investors and benefit the Hong Kong financial services industry.
Once the firm has demonstrated that its services are reliable and its internal control procedures have adequately addressed any risks identified, the firm may apply for the removal or variation of some or all of the licensing conditions.
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