A couple of months ago, the government of Vietnam issued a second draft decree on implementation of the regulatory sandbox for financial technologies (Fintech). We have been looking for this for a long time and, I’m ashamed to say it, I missed it when it first came through my inbox because I wasn’t looking for it in Vietnamese. But this last week I saw a piece that referenced the draft decree and upon further investigation I got my hands on the thing.
As the final decree will govern the ultimate disposition of Fintech regulations, I thought I would spend a bit of time examining what is contained in the decree in anticipation of public comment and final acceptance.
To begin, the draft decree broadly applies to two types of technology:
- Technologies used by Credit organizations that act as banks according to the Law on Credit Institutions.
- Technologies developed in the banking sector by financial institutions independently developed.
While the draft applies to technology, there is a further restriction of which companies can participate in the sandbox, namely credit institutions and Fintech companies that receive authorization from the State Bank of Vietnam (SBV).
Financial technologies in the banking sector consist of innovative creations and current financial services on technology apps that apply in the banking sector.
Financial technology companies are organizations that are not credit institutions, branches of foreign banks with authorization to act in Vietnam, that independently provide Fintech or information cooperation with credit institutions or foreign banks that provide Fintech to the market.
If a company is an eligible company as defined, they must also demonstrate that they operate using one of the following technologies:
- Providing credit on a technology platform;
- Credit Scoring;
- P2P Lending;
- Blocktain Technology or Distributed Ledger Technology;
- And any other technology that is in line with the goals of the sandbox.
Some definitions of eligible technologies:
Peer-to-Peer Lending (P2P Lending) is defined as activities of giving loans using technology that is developed and occurs on Fintech apps from companies that make P2P Loans with the role of indirectly connecting lenders and borrowers.
Application Programming Interface (API) is defined.
Credit scoring is defined as the collection and analysis of information regarding the credit worthiness of individuals both real and corporate.
Blockchain is defined.
The application of the sandbox is for specific purposes and the goals of the sandbox as listed in the draft decree include:
- To promote innovative technology and modernize the technology used in the banking sector and provide citizens and corporations easy, transparent and low cost services.
- To create an environment in which regulators can assign the risks, fees, and benefits of Fintech technology and to promote the progress and development of Fintech Technology according to the demands of the market.
- To limit the risks that customers face in participating with Fintech technologies that have not yet been regulated by the laws of Vietnam.
- To assist the regulatory authorities to create legislation and have the authority to create legal and managerial regulations for the FIntech.
The draft decree additionally sets out the procedure for applying to participate in the sandbox. And specifically, the conditions that must be met by prospective participants before they apply. These conditions include:
- Being a company in the territory of Vietnam not in the process of restructuring, merger, division, etc. Not being in the categories of credit institutions governed as special cases under the law of credit institutions;
- The legal representative and general manager must request the participation to assist with the development of the company’s specialization in Fintech;
- The technology used by the company meets the following conditions:
- It is not currently contemplated or in the process of being contemplated by any law or legal decree;
- It creates added value or benefits the users of the service in Vietnam;
- It was created with the intent to limit the risks to banks and banking activities;
- It meets all the other requirements set out for participation in the sandbox;
- It is capable of being promoted to the market upon successful completion of its participation in the sandbox.
Participation in the sandbox is limited to a two year window, and should the regulations necessary to govern the participant’s technology be promulgated prior to the expiration of that two years, then they will be asked to leave the sandbox and abide by the new legislation.
The draft decree then examines the process for P2P Lending institutions to participate before it moves to issues more relevant to the regulator, in this case the SBV, such as initiating the sandbox and terminating the sandbox. How participants can apply to extend the time of their participation in the sandbox. What consitutes evidence of completion of the sandbox. Etc.
In addition to the draft decree itself, there are several appendices which contain the forms for application and various tasks related to participation in the sandbox.
While it remains a draft, the decree on the Fintech regulatory sandbox does show that someone in the government is keen to move forward with the sandbox. This is a good thing, though one could still wish for greater speed in its implementation. For Vietnam to remain competitive regionally in Fintech, it must come to terms with the rapidly changing technology and the need for quick and reactive legislation to govern it.
One hopes that, through the regulatory sandbox, the SBV will be able to meet the regulatory demands of the many companies who already provide services in this sector and do so without any appropriate legislation. With luck, we’ll see this decree accepted by the government and promulgated within the next few months, but as with every piece of legislation in this country, we may yet be disappointed. Watch this space for more.