On 4 March 2024, the Government of Vietnam published the draft Decree on the regulatory sandbox in the banking sector ("Draft Decree"). The drafting of this decree started in 2021 and has undergone multiple revisions. The recent promulgation of the Law on Credit Institutions No. 32/2024/QH15 dated 18 January 2024 (“Law on Credit Institutions 2024”) created a legal basis for the development and promulgation of this Draft Decree by assigning to the Government detailed regulatory supervision over this matter.

This legal update highlights notable aspects of the Draft Decree that, in our view, are important for fintech service providers.

1. Fintech sectors covered under the sandbox mechanism

According to the Draft Decree, the regulatory sandbox permits testing of fintech solutions within the banking sector in only the following fields (each, a “Permitted field”): (i) credit scoring; (ii) open application programming interface (open API), and (iii) peer-to-peer lending (P2P lending).

2. The Testing Period for Fintech Solutions

The testing period for fintech solutions is capped at a maximum of two years, depending on the specific fintech solution and Permitted Field, from the issuance date of a Certificate of Participating in the Sandbox Mechanism (the “Participation Certificate”). The term of the participation Certificate will not extend beyond the term (if any) of the establishment license/enterprise registration certificate of the participating entity. The State Bank of Vietnam (SBV) has the authority to grant up to two extensions, each extension not to exceed one year.

3. Conditions to participate in the sandbox mechanism regarding credit scoring and open API 

3.1. A credit institution will be considered for granting a Participation Certificate when its fintech solution satisfies the following criteria:

(i)  the implementation and application of the fintech solution contains technical and professional aspects
     that are lacking in the current legal framework;

(ii)  the solution must be creative and bring added value to users in Vietnam – especially those which
     can support and foster financial inclusion;

(iii) a risk management system is integrated into the solution to mitigate adverse impacts on the banking
      system and the financial sector of Vietnam. It should be capable of addressing and reducing risks
      during the testing phase;

(iv) the participating entities must have conducted comprehensive assessments of the solution's
      operation, functions, and usefulness. For instance, in case fintech solutions are introduced directly
      to customers/service users for the first time in the market, the participating entities must prove that
      such solutions can meet the needs of customers/service users and the market and have the 
      ability to attract customers/service users; and

(v) the solution must be feasible for distribution in the Vietnamese market upon completion of
     its testing period.

3.2. A fintech company will be considered for granting a Participation Certificate when the solution meets all of the credit institution criteria specified in section 3.1 above and the following additional requirements:
 
(i)  it is a legal entity established and legally operating in Vietnam; is not in the process of division, 
     separation, consolidation, merger, conversion, dissolution or bankruptcy according to legal regulations.
     It must not belong to the group of credit institutions under special control under the Law on Credit
     Institutions; and

(ii) the legal representative and General Director (Director) of the organization registering to participate
     in the sandbox mechanism must meet specific qualification requirements.

3.3. A P2P lender will be considered for issuance of a Participation Certificate when the solution meets the credit institution criteria specified in section 3.1 above and the following additional requirements:
 
(i)  it is a legal entity established and legally operating in Vietnam; is not in the process of division.
     separation, consolidation, merger, conversion, dissolution or bankruptcy according to legal
     regulations. Its establishment license/enterprise registration certificate does not include pawn
      business;

(ii) legal representatives and General Director/Director of the P2P lender must not have a criminal
     record or be sanctioned for administrative violations in the field of finance, banking and cyber
     security. In addition, he/she must meet certain qualifications requirements and notably, must not
     concurrently be the owner or manager of a financial service business, credit, pawn, or multi-level
     marketing business, or be the owner of a tontine group, or be a member of the Board of
     Directors, member of the Members’ Council, member of the Supervisory Board, General
     Director (Director), Deputy General Director (Deputy Director) and equivalent positions in
     credit institutions, branches of foreign banks, organizations providing payment intermediary
     services; and

(iii) the founders and managers of the P2P lender must not take advantage of their management
     and administrative positions to commit acts that infringe upon the property, rights and legitimate
     interests of participating parties.

4. Issuance of a Completion Certificate

Upon completion of the trial under the sandbox mechanism, a participating entity will have to submit a report on the test run result to the SBV. Following SBV’s review and consultation with relevant ministries, the SBV may consider issuing a Certificate of Completion of the Sandbox Program (the “Completion Certificate”). This certificate is issued in the following circumstances:

(i)  When the official legal regulations for fintech solutions have been completed and come into
     effect, an organization participating in the sandbox mechanism complies with the legal
     regulations at the time of completion of the trial;
 
(ii) When the implementation of a pilot fintech solution by an organization participating in
     the sandbox mechanism is determined to comply with existing legal regulations and the
     fintech solution is not considered a conditional business activity. Subsequently, such
     organization may offer the relevant fintech services in the Vietnamese market in accordance
     with applicable law at the time of completing the trial.
 
5. Other highlights
 
(i)  Being part of the sandbox mechanism does not guarantee participating organizations an
     official operating license, nor does it mean that their fintech solutions are officially recognized
     for market distribution.
 
(ii) The SBV determines the maximum number of organizations allowed to participate in the
     sandbox mechanism based on its document review capacity and supervision capabilities
     from time to time. This is in line with the market's actual development and relies on
     organizations voluntarily participating. The SBV publicly announces the approved
     organizations out of the total applicants from time to time.
 
(iii) The regulatory sandbox mechanism is limited to Vietnam; cross-border testing is not allowed.
 
(iv) The SBV conducts on-site inspections of organizations participating in the sandbox mechanism,
      but not more than twice per year.

The information provided is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.