In its “Hong Kong Banking Outlook 2017” report, KPMG said that it expects the fintech market in Hong Kong to flourish in 2017, with more cooperation between fintech and financial services firms in the region.

Speaking of blockchain or distributed ledger technologies (DLTs), the report noted the growing popularity of the technology, while pointing out the rise in funding going to blockchain-related companies.

“One particular area of interest for banks in Hong Kong is the development of blockchain technologies”, James McKeogh, Partner, KPMG China, said. “However, the HKMA emphasised in its recent report on Distributed Ledger Technology that despite its ability to save time and money, blockchain technology also raises significant legal and regulatory issues. While this should not detract Hong Kong banks from exploring blockchain opportunities, they should also carefully monitor regulatory developments and take steps to enhance their risk management procedures around this new technology.”

In order to promote the development of fintech, the Hong Kong Monetary Authority (HKMA) set up the FinTech Facilitation Office (FFO) in March, which explores the potential application of new and unique fintech solutions that could bring benefits to banking and payment services in Hong Kong. In November, the FFO released a report on DLT in conjunction with ASTRI (Hong Kong Applied Science and Technology Research Institute).

In addition, the report also urged banks to monitor areas such as RegTech and InsurTech which are starting to gain traction in the country.

“Faced with increasing regulatory scrutiny and compliance costs, we expect to see more banks in Hong Kong harness RegTech solutions in 2017 to boost their responsiveness to regulatory changes, reduce costs and improve profitability”, Jyoti Vazirani, Partner, Head of Financial Risk Management, KPMG China, said.

To that end, Vazirani said that banks will seek to implement the latest blockchain, artificial intelligence (AI), cloud computing and data analytics tools and technologies across the entire organisation. She expects RegTech solutions that automate regulatory reporting processes to be in greater demand in 2017, and pointed out that banks are increasingly viewing RegTech solutions as complementary to their business models.

“We therefore expect to see a lot more collaboration between banks and RegTech firms in Hong Kong in the coming year”, she said. “While banks continue to embrace FinTech and RegTech solutions, they will also need to use the next 12 months to consider putting appropriate risk management controls in place around the use of technology, cybersecurity and data confidentiality.”