In the middle of 2020, the State Bank of Vietnam (“SBV“) released a draft Decree on Fintech Regulatory Sandbox in Banking Sector (“Draft Decree“) for public consultation. The Draft Decree expects the Fintech Regulatory Sandbox (“Sandbox“) will enhance the disruptive innovation, establish an experimental playground, protect the service users and set the foundation for definite regulations in the future. The deadline for comment was due by the end of last June and the government reportedly plans to officially go live the Sandbox by the end of 2021.
Given that the official regulation regarding the Sandbox may vary from the Draft Decree, Steven & Phan would like to summarize some key takeaways and unclear points regarding the Draft Decree in order to help enterprises in Vietnam self-prepare, of either the aspect of technologies or compliance, for and have an overview of the upcoming Sandbox.
Key takeaways
Who can join the Sandbox?
Only legal entities incorporated and operating under the laws of Vietnam can take part in the Sandbox. As such, there is no space left for offshore companies to the Sandbox. The Draft Decree categorizes the participants into 03 types, specifically: (i) credit institution; (ii) fintech company/fintech solution provider partnering with the banks; or (iii) independent fintech company/fintech solution provider (“Eligible Entity(ies)”).
What fintech services are covered by the Sandbox?
- Payment
- Credits
- P2P lending
- Support in client identification
- Open API
- Solutions employing innovation technologies such as blockchain
- Other banking support services such as credit rating, savings, and capital mobilization
Licensing requirements for participation in the Sandbox
Under the Draft Decree, Eligible Entities must obtain a certificate of registration of participation in the Sandbox issued by the Prime Minister (“Registration Certificate”) with the assessment opinion from the SBV. That said, the SBV will initially appraise the application and subsequently escalate the satisfied ones to the Prime Minister for consideration and approval/refusal.
Eligible Entities must satisfy all of the following requirements:
- The solution is wholly or partially unregulated by Vietnamese laws.
- The solution must be a creative one applied for the first time in Vietnam or applied for new services employing great creativity that benefits users in Vietnam, especially solutions supporting and fostering financial inclusion.
- The solution must be equipped with a sufficient risk management system, without or with little possibility of having adverse impact on financial institutions and the financial system of Vietnam, and capable of tackling and reducing risks during the Sandbox.
- The solution’s functions and usefulness have been properly and accurately assessed by the Eligible Entity.
- The solution must be highly commercial with a detailed plan on distribution upon completion of its test run in the Sandbox.
- The solution does not pose any risks possibly resulting in financial and economic disorders.
Appraisal rules
- In order to ensure the approval process is fair, objective and transparent, the Draft Decree outlines several rules as below:
- Firstly, the obtained Registration Certificate is not necessarily equivalent to an official license.
- Secondly, fintech services or solutions not falling in the abovementioned list are subject to the Prime Minister approval on a case-by-case basis, and the eligibility will be determined based on the potential and benefits such services can provide to Vietnamese society and the economy.
- Thirdly, the maximum number of Eligible Entities to the Sandbox will be determined by the Prime Minister on the ground of capabilities for documentation and observation (of the authority) from time to time.
Duration of the Sandbox
The duration of the Sandbox ranges from 01-02 years from the date of approval from the Prime Minister. It is worth noting that the exact duration will vary depending on the solution and relevant area and is subject to the Prime Minister’s sole discretion.
Extension of Sandbox duration
The Draft Decree introduces only one circumstance whereby extension could be considered. Specifically, the Eligible Entity, which wishes to extend the duration, can file a written request to the SBV within 2 months prior to the expiry date of the applicable Sandbox in case of the absence of any official and effective legal framework governing the fintech service(s) at hand. The Prime Minister will base on the outcome (of the Sandbox) and actual situation to grant, at his sole discretion, extensions of periods of less than one year (per extension).
Sandbox completion
Upon completion of the Sandbox, the SBV will appraise and consider whether it will urge the Prime Minister to certify the completion of the Sandbox (“Completion Certificate“). This Completion Certificate serves as a ground for the Eligible Entity to legally provide the relevant fintech services to the market.
Some unclear points
As mentioned, the fintech services or solutions not enlisted in the Draft Decree will be considered by the Prime Minister on a case-by-case basis. The Draft Decree, however, fails to clarify whether the inclusion can be achieved (i) by one or several request(s) by the Eligible Entities or (ii) only at the Prime Minister’s sole perspective and discretion.
Secondly, to apply for extension, the Eligible Entities must file a written request to the SBV within 2 months prior to the expiry date of the applicable Sandbox, this may confuse the Eligible Entities as the official legal framework may be promulgated after the extension request but before the expiry date. In addition, the timeframe necessary for the Prime Minister to assess and approve or refuse the extension application is not stipulated in the Draft Decree.
Thirdly, some may need clarification regarding what will happen to Eligible Entities outside of the Sandbox. Further clarification must be sought about whether the Eligible Entities opting to stay outside the Sandbox or fail to obtain the Registration Certificate are restricted from operation or providing fintech services. That said, the absence of any restriction towards those outside Eligible Entities may raise concern about unfairness for the Eligible Entities which are inside the Sandbox by going through all complicated and high-level regulatory procedures to obtain the Registration Certificate.
Disclaimer:
This material is provided for informational purposes only. The provision of this material does not create an attorney-client relationship between the firm and the reader, and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel. Do not take action in reliance on the contents of this material without seeking the advice of counsel.
The information contained in this article may or may not reflect the most current legal developments. Accordingly, information in this article is not promised or guaranteed to be correct or complete, and should not be relied upon as such.
Readers should conduct their own appropriate legal research.
