Vietnam Revs Up Fintech Sector With Updated Draft Of Sandbox Decree – Fin Tech

Vietnam’s fintech industry is booming, and the rapid
emergence of tech startups and non-bank institutions offering
innovative financial services has been outpacing existing
regulations. This regulatory gap not only creates uncertainty for
both innovators and consumers, but also poses a number of imminent
risks in areas such as consumer protection, data privacy,
cybersecurity, and anti-money laundering, among others.

The State Bank of Vietnam (SBV) is stepping up to tackle these
challenges by accelerating the promulgation of a long-awaited
Fintech Sandbox Decree with the issuance of an updated draft
(“Draft Fintech Sandbox Decree”) on March 4, 2024. The
Draft Fintech Sandbox Decree establishes a controlled environment
where fintech companies and financial institutions can test
solutions that do not fall squarely within the parameters of
existing regulations. The pilot activities will be limited in
scope, scale, and duration, with a number of precautionary measures
in place. The SBV will supervise this “sandbox” closely,
effectively mitigating risks and gathering valuable data to inform
future regulations.

Who Can Participate in the Sandbox?

• Traditional financial institutions (credit
  institutions): Banks and other institutions licensed to
  provide financial services can participate in the sandbox to test
  new offerings or refine existing ones.




• Independent fintech companies: Startups and
  established companies specializing in fintech solutions can
  leverage the sandbox to pilot innovative ideas before seeking wider
  market adoption.




• Other relevant organizations involved in the pilot:
  Depending on the specific solution being tested, other entities may
  also be involved in the sandbox.




• Geographical scope: Limited to Vietnamese territory;
  cross-border testing is not allowed.

Focusing on Three Solution Categories

Earlier versions of the Draft Fintech Sandbox Decree included
categories like blockchain technology and other innovative business
models, but these were removed in the latest version. To allow the
SBV to assess the associated risks and work on the solutions more
effectively, this version focuses only on the following three
solutions:

• Credit scoring: Fintech companies can pilot new credit
  scoring models to assess the creditworthiness of individuals or
  organizations.




• Data sharing via Open Application Programming Interface
  (“Open API”): Secured data-sharing mechanisms using
  Open APIs can be tested within the sandbox.




• Peer-to-peer lending (“P2P Lending”):
  Platforms that connect lenders and borrowers can be piloted in the
  sandbox.

Participation Conditions

Fintech companies must meet specific criteria depending on the
solution they are piloting. The criteria will vary depending on the
complexity and potential risks associated with the solution. For
example, P2P lending platforms might face strict requirements on
cybersecurity and network information security.

All participants must submit a registration dossier and obtain a
Certificate of Participation from the SBV.

Monitoring and Risk Control

The SBV will closely monitor activities, evaluate participation,
and assess the effectiveness of the piloted solutions, with a
dedicated team to oversee activities within the sandbox, ensuring
that participants comply with applicable regulations and that
pilots are conducted safely and effectively.

Participating organizations are required to submit regular
reports and provide ad hoc information on the pilot process,
operational indicators, risks encountered, and the results of the
pilot implementation to the SBV.

Customer Protection

Participating organizations have a responsibility to ensure
customer rights and interests. This includes informing them about
potential risks associated with using the piloted solution,
obtaining their informed consent, and clearly outlining data
privacy practices.

Participating organizations must implement robust security
measures to safeguard customer data collected during the pilot
program.

For dispute settlement, organizations are required to establish
a customer complaint handling department and have clear mechanisms
in place to address any disputes or complaints arising from the use
of their piloted solutions.

Sandbox Conclusion

The pilot period will last a maximum of two years, with the SBV
having the authority to adjust the length based on the actual
implementation. After the pilot period, the SBV will decide on the
next steps based on participating organizations’ reports, its
own monitoring data, and any feedback received from relevant state
authorities. Options will include terminating the pilot, certifying
its completion, or extending the pilot period.

Participation in the Sandbox Mechanism does not guarantee an
operating license or market approval for the piloted solutions.

Outlook

Once it is officially passed, it is hoped that the Fintech
Sandbox Decree will usher in a new era of controlled
experimentation in the sector, fostering a dynamic fintech
ecosystem where innovation can thrive alongside robust regulations.
By balancing innovation with consumer protection, cybersecurity,
and data protection, it has the potential to transform Vietnam into
a hub for groundbreaking fintech solutions, all while safeguarding
the integrity of the financial system and consumers’
interests.

Now that the sandbox program has been streamlined to include
only the three most prominent fintech solutions, the SBV might be
able to speed up the official issuance of the Fintech Sandbox
Decree.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.