Hong Kong’s asset management industry could potentially see more blockchain developments ahead with the Securities and Futures Commission saying it is open to fund tokenization.

During the 16th Annual Conference of Hong Kong Investment Funds Association, Securities and Futures Commission (SFC) chief executive Julia Leung reiterated the regulator’s support for the deployment of tech in the financial sector. 

Of note was the specific mention of blockchain technology in asset management. 

«More generally, technology and digital tools must be leveraged further to improve the clearing and settlement processes for funds as well as investor experience. In this area, the SFC embraces technology and is open to the idea of fund tokenization going forward,» Leung said in a published speech.

Artificial Intelligence

On technology, Leung’s speech was particularly focused on artificial intelligence (AI) and the emergence of chatbots. 

She notes that she asked a chatbot what asset management strategy would work under high interest rates, to which it responded with short-term bonds, dividend-paying stocks, value stocks, cash and cash equivalents and diversification

«The response is classic but unremarkable. As an information aggregator, AI [...] output merely averages past experience and deals with 'known unknowns’. Clearly, this makes the human brain more valuable when it comes to strategic decision-making and dealing with the 'unknown unknowns’,» Leung said.

Accountability

While Leung was sanguine about the outlook for technology and AI deployment in asset management, she underlined that there were still risks involved and highlighted financial firms as the ultimate entity responsible.

«We expect licensed corporations to thoroughly test AI to address any potential issues before deployment, and keep a close watch on the quality of data used by the AI,» Leung noted.

«Firms should also have qualified staff managing their AI tools, as well as proper senior management oversight and a robust governance framework for AI applications. For any conduct breaches, the SFC would look to hold the licensed firm responsible – not the AI.»