Elaborating on the pilot mechanism in the banking sector under the new Credit Institutions Law 2024, the Government of Vietnam recently published the draft Decree on the regulatory sandbox in the banking sector (“Draft “). The Draft gives way to the earlier proposals by the State Bank of Vietnam under the name of Decree on fintech sandbox in the banking sector.

In lieu of 6 solutions prescribed in the earlier version, only 03 sectors are proposed to be institutionalized, viz. peer-to-peer lending (P2P lending), open application programming interface (open API), and credit scoring. Three groups of fintech solutions excluded are credit granting activities on technology platforms; application of blockchain technology; and application of other technologies to support banking operations.

One of the sandbox drafting principles is the balance between innovation encouragement, business activities, financial stability and consumer rights protection, cyber security protection, risk management, and mitigation. As such, the Draft proposes a handful of policies by regulating (i) the responsibilities and reporting obligations of the participants, and (ii) the authorities and responsibilities of the state agencies (including the Ministry of Public Securities).

The criteria and conditions applicable to companies taking part in each solution are, though, greatly crafted, there are certain points in question. On the one hand, P2P lending participants must not register pawnshop business as one of their business lines and their managements must not be board directors, supervisory committee members, general directors (directors), deputy general directors (directors), or the like of financial institutions, foreign bank branches, or intermediary payment services providers. However, on the other, the legal representative or general directors (directors) must have at least 2 years of experience in managerial positions/managers in the finance and banking sectors.

Participants must also take heed to the after-effects of the sandbox. The Draft now sets out a provision on the issuance of the completion certificate for the participants, howbeit, leaves the answer for the future regulations.

The pilot term will be permitted up to 02 years from the date of the certification of regulatory sandbox participation issued by the State Bank of Vietnam. The terms of each solution will vary and be decided on a case-by-case basis. Each solution will only be limited to its scope of activities licensed by the State Bank during the entire certificate term, including transaction limit or number of customers.

Geography-wise, this regulatory sandbox must only be permitted within the territory of Vietnam, no cross-border activities are allowed.