Hong Kong Government Still Cautious About Blockchain

The Hong Kong Monetary Authority (HKMA) held a one-day fintech event on Friday to present blockchain and distributed ledger technology (DLT) to the industry. The event also coincided with the central bank’s launch of a DLT research whitepaper. The paper says fintech explores new frontiers beyond “trendy banking or payment services,” like artificial intelligence, virtual reality and big data analytics. But is Hong Kong’s approach too cautious to be useful?

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Analyze Benefits, Then Challenges and Risks

“DLT is perhaps better known as ‘blockchain'” the document’s introduction reads, perhaps raising eyebrows among the field’s technologists. This technology goes far beyond just virtual currencies or commodities, it adds. However as DLT’s value proposition grows, it also presents new risks and governance issues the industry must examine first.

Speakers at the fintech event referred to the paper and presented its key aims. These include the need to example DLT’s potential, its risks, and its regulatory and legal implications. Additionally, they wished to identify possible applications to banking services by engaging in proof-of-concept work.

With this knowledge, researchers would provide control guidance to the banking sector. They would share any lessons learned with the fintech industry and banking sector in Hong Kong, so as to facilitate further DLT developments.

Hong Kong Optimistic About Blockchain, but Still Very Cautious

While embracing fintech generally, the event took a cautious approach to DLT. Delivering a keynote address, HKMA chief executive Norman T.L. Chan said:

“The very fact that DLT allows information or records to be transferred and updated by network participants in a trustworthy, secure and efficient way, carries enormous potential in its application. However, while the value proposition of DLT is gradually crystallising, the use of DLT in financial services may bring about new risks and challenges in its application. As a regulatory authority, the HKMA needs to have a better understanding of these issues before DLT can be adopted for wide application in the banking sector.”

The whitepaper concludes that it’s too premature to draw definite conclusions on DLT at this stage. Instead, it calls for regulators, the legal profession and independent technology assessors to make preparations. It also asks them to practice prudence, and not get too excited until they address all key issues.

HKMA commissioned the Hong Kong Applied Science and Technology Research Institute (ASTRI) to produce the whitepaper. A second whitepaper will appear once the proof-of-concept and regulatory analysis is complete.

Not All Local Startups Impressed

Some event attendees, however, expressed disappointment. Thomas Glücksmann, representing local cryptocurrency exchange Gatecoin, attended the event. However he said the whitepaper’s contents do little for the territory’s startups or reputation as a financial innovation center.

“It’s about time the HKMA published some formal assessment on distributed ledger technology, given that institutions in the Mainland are way ahead. But if you actually take a look at the whitepaper, you won’t find much substance. For the most part, the paper discusses the risks associated with the technology, which isn’t very encouraging and it fails to take a bigger picture view of DLT’s promise, aside from a few quite conservative applications for large financial institutions.”

What’s more frustrating, Glücksmann added, is that ASTRI did not engage with any Hong Kong-based blockchain startups to scrutinize or provide input on the whitepaper. “When you exclude startups from the discussion about the technology they are helping to innovate, and also exclude them from direct access to a fintech sandbox, don’t expect much substance behind all the hype about Hong Kong becoming a major fintech hub.”

Hong Kong Tech Organizations Backing Blockchain

The project includes strategic partners Cyberport and the Hong Kong Science and Technology Parks. Both organizations are working on other blockchain-related projects, such as the upcoming “Chain of Shipping” case-study event.

Whereas 2014 saw central banks issue regular boilerplate warnings against cryptocurrencies, there’s now a rush to embrace blockchain. Hong Kong’s parent government in China is also on board, releasing its own blockchain whitepaper in October. That release coincided with a two-day conference aimed at presenting blockchain’s benefits to senior government officials.

Is government enthusiasm for blockchain and DLT a revolution, or just an evolution? Let us know in the comments below.

Images via Thomas Glücksmann, Shutterstock

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