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Fintech ‘sandbox’ needs clear legal landscape

Investors say that Vietnam's Fintech market, including e-wallets, is "extremely explosive", "fertile" and "attractive". But asked if they will invest in these fields, they say no.
Digital payment is a growing service segment in the field of digital finance. Photo: VGP

Mr. Nguyen Minh Hoang, an expert and senior advisor for P2P lending companies, could not hide his disappointment when talking about Vietnam’s careful and timid approach to a Fintech sandbox, which causes local firms to miss out on business opportunities in a booming digital economy.

“I agree that it is difficult to implement Sandbox, especially Fintech, because it is necessary to be careful and ensure maximum safety for people and currency security, but it is also necessary to speed it up, so that Vietnamese businesses can participate in the market which foreign partners consider attractive. If it is too late, Vietnamese businesses will lose at home. Currently, many applications in the field of P2P lending of Vietnamese businesses are not allowed to run on the Apple store because the legality of this field in Vietnam is not clear," said Mr. Hoang.

Fintech in trouble

The Vietnam Chamber for Commerce and Industry (VCCI) has selected Sandbox as one of the significant business legal flows of 2021. However, the challenge and concern in building a testing mechanism is what VCCI has emphasized.

According to VCCI research, Vietnam has not had any sandbox testing mechanism in the true sense of the word.

The testing mechanism (sandbox) is considered a useful tool to promote innovation, by allowing the regulator to observe new products and services in a limited real environment. 

Of course, the testing mechanism is not the tool for every problem that arises from technology. Sandbox is only really needed when products and services need a new way of operating a business model. There are often legal obstacles that hinder the deployment and expansion of products and the growth ability of businesses.

Dr. Chu Thi Hoa, Deputy Director of the Institute of Legal Sciences, Ministry of Justice, explained that sandbox is a test space for businesses to operate and experience new products and services, and for management agencies to observe, learn, and better understand what businesses are doing, from which plans for appropriate adjustment documents are then developed. 

Prior to that, both businesses and management agencies had not fully anticipated the impact of products and services on socio-economic life.

“When businesses graduate from the Sandbox class, the management agency also graduates from that class. But because they are studying together, businesses will be exempted from some legal procedures. When they graduate, go to the market, they will decide to continue or not, but if they operate, they are equal to other businesses, subject to the regulation of legal documents that the management agency has designed after the process of accompanying the experiment of enterprises,” said Ms. Hoa.

Cautious management thinking

But the reality is not so simple. VCCI's survey shows that there is still no common standard, a specific "model" for a legal testing framework in Vietnam. That is, the issuance of Sandbox is dependent on the case, approach and viewpoint of the state agency in charge.

Reviewing the testing mechanisms that have been issued as well as the current proposals, it is possible to see a variety of legal documents, from administrative to legal documents related to Sandbox. 

For example, the Minister's decision is issued under the written permission of the Prime Minister (in the case of Decision 24/2016/QD-BGTVT issuing a pilot plan for implementing sci-tech applications to support the management and connection of passenger transport activities under the contract) or the Prime Minister's Decision on the pilot mechanism for Mobile Money; the Government Decree on Sandbox proposal for Fintech in banking sector; and proposed Sandbox for artificial intelligence products and services, and new digital technology products and services in the Law on Digital Technology Industry bill.

A notable trend mentioned by the VCCI is the difference in the regulation of the testing mechanism in the draft laws. In many cases, the draft laws do not even mention or contemplate the establishment of a Sandbox mechanism.

Currently, businesses in the Fintech sector are in the same position as Grab and Uber in 2016 in Vietnam. They cannot impose current financial regulations to operate P2P lending, while in other countries, Sandboxes for Fintech have gone ahead. As many as 73 Sandboxes were announced in the Fintech sector as of August 2020. In Southeast Asia, six countries have set up a Sandbox: Thailand, Singapore, Malaysia, Indonesia, Brunei and the Philippines.

As a result of the delay, there are currently nearly 200 P2P lending businesses operating. But legal entities are not registered to operate in Vietnam while the Vietnamese market and users have begun to be "addicted" to this.

"I hope the management agencies see this fact clearly to speed up this process," Mr. Hoang suggested.

Ms. Hoa said that management agencies need to change their approach if they want unicorns to have the opportunity to grow in Vietnam. She added that management agencies should not be so prudent and require perfection in this new field.

Tran Hoang Anh


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