|Steven Jacob - Of counsel, Indochine Counsel
The draft decree broadly applies to two types of technology: that used by credit organisations that act as banks according to the Law on Credit Institutions; and independently developed tech in the banking sector from financial institutions.
While the draft applies to technology, there is a further restriction on which companies can participate in the sandbox, namely credit institutions and fintech companies that receive authorisation from the State Bank of Vietnam (SBV).
Fintech in banking consists of innovative creations and current financial services on tech apps. Related companies are organisations that are not credit institutions, branches of foreign banks with authorisation to act in Vietnam, those which independently provide fintech or information cooperation with credit institutions, and foreign banks that provide fintech to the market.
If a company is an eligible company as defined, it must also demonstrate that they operate using one of the following technologies: providing credit on a tech platform; credit scoring; APIs; peer-to-peer (P2P) lending; blockchain or distributed ledger technology; or any other tech that is in line with the goals of the sandbox.
Here, 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; while credit scoring is defined as the collection and analysis of information regarding the credit worthiness of individuals both real and corporate.
APIs, or Application Programming Interfaces, are defined as digital systems that promote the sharing of data between two different digital systems, or in other words a third party that acts to transfer data. Blockchain is defined as technology that allows for the preservation of data through a single block spread over multiple digital systems sufficient to allow each different digital system to recognize and accept the black.
The application of the sandbox is for specific purposes and the goals as listed in the draft decree include:
- To promote innovative technology and modernise tech 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 and to promote the progress and development of related tech according to the demands of the market;
- To limit the risks that customers face in participating with related tech that has not yet been regulated by the laws of Vietnam; and
- To assist the regulatory authorities to create legislation and have the authority to create legal and managerial regulations for 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, or division; and 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 also request participation to assist with the development of the company’s specialisation in fintech. In addition, 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; and it is capable of being promoted to the market upon successful completion of its participation.
Participation is limited to a two-year window, and should the regulations necessary to govern the participant’s tech 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 and terminating the sandbox; how participants can apply to extend the time of their participation; what constitutes evidence of completion of the sandbox.
Besides 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. 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.