P2P Lending Regulation in Vietnam

In recent times, the application of achievements of the fourth industrial revolution in the field of financial technology (Fintech) in the world in general and in Vietnam, in particular, has created many new products and services, including peer-to-peer lending applications (hereinafter referred to as P2P Lending). In Vietnam today, how are the P2P lending regulation in Vietnam? Below, Viet An Law will update some information for clients.

What is Peer-to-Peer Lending (P2P Lending)?

Peer-to-peer lending (P2P Lending) is designed and built on a digital technology platform, directly connecting borrowers with lenders (investors) without going through a financial intermediary.

Accordingly, all borrowing and debt repayment activities (principal and interest) between borrowers and lenders are recorded and stored by the online trading platform of the company operating the platform in electronic, digitized records on the database system of the P2P Lending company, posted for customers to register to participate in the platform to access.

• With the above characteristics, P2P Lending activities can contribute to supporting financial inclusion, expanding capabilities and creating more channels to access financial resources and lending methods for the economy, especially for vulnerable groups in society (with internet access); thereby contributing to pushing back the situation of “black credit”.
• However, P2P Lending activities also have many potential risks (lending risks, information risks, anti-money laundering risks, cyber security risks…) that can have adverse and destabilizing impacts on social security.

P2P lending regulation in Vietnam

In Vietnam, a company operating similar to the P2P Lending model began to appear in 2016 with the website huydong.com. Since then, many other P2P Lending companies have gradually come into operation, such as Tima, SHA, Mobivi, and Vaymuon.vn, Mofin… However, Vietnamese law currently does not have specific legal regulations on P2P Lending activities, but is only in the construction phase, collecting opinions for promulgation.

Previously, the Law on Credit Institutions 2010 did not have any regulations governing bank lending activities. Therefore, the State Bank issued Official Letter No. 5228/NHNN-CSTT in 2019 on peer-to-peer lending activities to provide a number of recommendations for credit institutions to ensure system safety.

Recently, the Law on Credit Institutions 2024 has been issued with a provision in Article 106 on the Government detailing the controlled testing mechanism in the banking sector. To realize this provision, the Government is currently seeking comments on the second draft of the Decree regulating the controlled testing mechanism in the banking sector, including provisions on P2P lending activities.

Main content of legal regulations on peer-to-peer lending (P2P Lending) activities in the draft Decree

Definition

Pursuant to Clause 6, Article 3 of the draft Decree, peer-to-peer lending (P2P Lending) is a lending activity on a technology platform designed and implemented based on financial technology applications by a peer-to-peer lending company acting as an intermediary connecting borrowers with lenders.

Peer-to-peer lending is one of the Fintech solutions in the banking sector that is allowed to be tested in the pilot mechanism, along with solutions such as technology-based credit granting, credit scoring, blockchain technology applications, distributed ledgers, etc.

Activities not performed

Peer-to-peer lending companies during the process of participating in the Testing Mechanism are not allowed to perform the following activities:

• Providing loan security measures;
• Providing information brokerage services for borrowing money for stock investment activities and other high-risk activities;
• Illegal use of funds from customers;
• The founding and executive management personnel participate in borrowing, and lending and are the guarantors through the Fintech solution they operate, taking advantage of their management and operation advantages to change information through the Fintech solution, committing acts of fraud, cheating, and appropriating customers’ assets;
• The management and operation personnel of a peer-to-peer lending company are also the owners, management, and operation personnel of an enterprise providing financial services, credit, pawnshops, and multi-level marketing, are owners of rotating savings and credit associations, or are working in the banking sector, or doing business in fields related to payment intermediaries and e-wallets.

These regulations aim to protect transparency, minimize risks for borrowers and lenders, and ensure peer-to-peer lending operates within a strict and clear legal framework.

Conditions of peer-to-peer lending company

A peer-to-peer lending company must have a Certificate of participation in the Testing mechanism.

To be granted this license, a peer-to-peer lending company must meet the following conditions:

• Be a legal entity established and operating legally in Vietnam;
• Not in the process of division, separation, merger, conversion, suspension, dissolution, bankruptcy;
• The Establishment license or Enterprise Registration Certificate does not include the content of pawn service business activities.
• The legal representative and general Director (Director) of the Fintech company registering to participate in the Testing mechanism must not have a criminal record and not have been administratively sanctioned for violations in the fields of finance, banking, and cybersecurity.

Conditions of peer-to-peer lending solution

Peer-to-peer lending solutions participating in the testing mechanism satisfy the following criteria:

• Is a solution whose technical and professional content is not yet specified in any legal document or whose current legal regulations do not provide specific and clear instructions for implementation and application;
• Is an innovative solution that brings benefits and added value to service users in Vietnam, especially solutions that support and promote the goal of financial inclusion;
• The solution has designed and built a risk management framework, limiting negative impacts on the banking system and banking – currency – foreign exchange activities; has built a reasonable plan to handle and overcome risks that occur during the appropriate testing process;
• Is a solution that has been fully reviewed and evaluated by an organization participating in the Testing mechanism in terms of operation, function, utility, and usefulness;
• Is a feasible solution that can be supplied to the market after completing the testing process.

Order and procedures for applying for a Certificate of participation in the testing mechanism

• P2P lending companies participating in the testing mechanism submit their application to the State Bank.
• Within 05 working days from the date of receipt of the application, the State Bank shall issue a written confirmation that it has received all valid documents.
• Within 60 working days from the date of sending the written confirmation of receipt of complete and valid documents, the State Bank shall coordinate with relevant Ministries to conduct appraisal of the documents, including on-site inspection (if necessary).
• After the prescribed appraisal period, the State Bank shall issue a Certificate of participation in the testing mechanism to organizations whose dossiers meet the prescribed conditions and criteria.

Note: Within 90 working days from the date of issuance of the Certificate of Participation in the testing mechanism by the State Bank, the P2P lending company shall conduct testing of the Fintech solution within the prescribed scope. The State Bank shall decide on the scope of operation of the solutions including, but not limited to, one or more of the following factors: Geographical, transaction limit, number of customers using the solution; and shall not change during the testing period.

The draft Decree regulating the controlled testing mechanism in the banking sector is still in the process of collecting opinions for approval and promulgation. If this regulation is approved, it will be an important step in perfecting the legal framework for the fintech industry in Vietnam in general and P2P lending in particular, helping to improve transparency and protect the rights of customers in the field of P2P lending.

Above is an update on P2P lending regulation in Vietnam. If you have any related questions, please contact Viet An Law for the best advice and support!