As BizLIVE reported in the previous article, the State Bank of Vietnam (SBV) was completing the draft Impact Assessment Report of the policy on the development of a Decree on Experimental Mechanism for Financial Technology Activities (Fintech) in the banking sector.
The draft of this report outlined the values and benefits that Fintech brought, but also pointed out many potential risks without a legal basis to adjust.
The report said that in recent years, financial technology innovations had brought great benefits to banking and financial institutions by supplementing or addressing inefficiencies in current financial products and services such as time limits, transaction locations, physical customer contact points, customer identification and authentication, and relatively complicated transaction processes and procedures.
Fintech also played a vital role in promoting national financial universalisation by increasing access to financial services for a segment of people who did not have a bank account or had difficulty accessing traditional financial banking services.
In particular, Fintech in the field of finance and banking was realised by SBV to be a critical component to achieve the goal of ‘Digital government and digital economy’ in the Industrial Revolution 4.0 that many countries were heading, including Vietnam.
However, in the draft report above, SBV said that, at present, there was no legal basis for adjusting the operation of the majority of companies in the field of Fintech, while these companies were mainly associated with conditional business activities of finance and banking.
The operation of Fintech without a legal framework could cause potential risks to the market and customers, the draft report stated.
Specifically, some of the identifiable risks included market abuse risk, financial elimination risk, security risk, data leakage, money laundering, terrorist financing risks, high intermediary fees, non-transparent risks, and risks of illegal debt collection activities. In particular, the risk of market abuse often came from Fintech activities not subject to regulatory oversight.
According to SBV, the lack of legal and regulatory regulations would likely lead to an increase in the number of small businesses, start-ups without much experience and sufficient knowledge to provide Fintech products and services.
At the same time, that would lead to the openness of the inspection and supervision work of the management agencies, leading to these enterprises being able to commit violations, negatively affecting consumers and society.
With the risk of financial elimination, one of the goals of the legal framework governing the operation of enterprises was to ensure fair competition, avoid discrimination, and moved towards financial universalisation.
The absence of a regulatory framework for Fintech activities could lead to companies focusing on developing uneven, unequal service delivery between customers with different financial knowledge in different locations.
Meanwhile, security risks and data leakage might come from businesses that did not meet the industry’s general security standards due to the lack of market entry regulations. Collecting and processing sensitive data of customers required companies to meet strict criteria of system security and safety to prevent potential risks.
With the risk of money laundering and terrorist financing, authorised banks and Fintech solution providers must satisfy strict regulatory requirements and ongoing regulatory oversight. However, unmanaged Fintech businesses would easily overlook these processes since they were not strictly controlled.
Another concern was the high intermediate cost risk. For the financial sector banking management, agencies could adjust the ceiling or service fee floor to suit the market as the target of stimulation or restraint from time to time.
However, for unmanaged services, businesses could freely adjust the fee or link to set a high ceiling fee, causing damage and disadvantage for consumers.
Besides, in some activities such as peer to peer lending, crowdfunding, the lack of transparency could lead to investors losing money by providing inadequate information about investment products or transactions
Finally, there was the risk of illegal debt collection activities, also known as shadow banking debt collection at peer to peer lending brokers or community capital mobilisation.
Accordingly, SBV said that it was necessary to improve the State management role in the field of Fintech, establish and create a favourable environment for innovation, development of products, services, models. The new economy was based on digital technology, a new business model formed from Industry 4.0, thereby promoting the goal of financial universalisation for people.
At the same time, the report mentioned addressing the inadequacies, risks arising in the practice of Fintech activities through the design of a testing framework, including participant regulation, management process flow, criteria measure results as well as the procedure before, during and after the test.
