Hong Kong's Fintech Automation: Economic Benefits and Social Risks

Abstract

This paper examines the rise of fintech, its regulation, and the particular challenges these present for an international financial center (IFC), specifically an IFC with limited economic breadth. Fintech offers automation opportunities for financial institutions, and such automation will in most cases make banks more competitive and lower their labor needs. The Hong Kong government has actively embraced fintech to ensure competitiveness, and its regulation tracks leading international positions on ICOs, cryptocurrency and electronic payment. However, Hong Kong regulators have not facilitated fintech activities that would stimulate the local economy, such as equity crowdfunding.

Automation will generally translate into a reduction of human labor, particularly in mid-level jobs. In a large and varied economy, persons laid off from jobs at banks can seek engagement elsewhere. This is not necessarily true in an IFC with a less diversified economy. Hong Kong presents the highly unusual case of persons in a small IFC who have access to a large and diverse economy in mainland China, yet may refuse to seek new positions in the larger workplace for cultural or political reasons. The Hong Kong government has blithely followed a “market leads, government facilitates” philosophy of laissez faire for decades and thus also has failed to prepare for the social costs of fintech. While such preparation would indeed constitute social planning, an activity generally discouraged in Hong Kong, circumstances dictate that the HKSAR government begin to act socially, rather than merely facilitate the largest businesses.