Introduction
The financial sector finds itself in the midst of two transitions – a green and a digital transition. These transitions can clash, but also reinforce each other. Here’s how these transitions are shaping Vietnam’s financial regulation landscape:
1. ESG Impact on Risk, Capital, and Governance:
Vietnam’s financial institutions are increasingly feeling the impact of environmental, social, and governance (ESG) factors on their risk assessment, capital allocation, and governance structures. At the COP26 conference in 2021, Vietnam pledged to achieve net-zero emissions by 2050 and joined the Global Coal to Clean Power Transition statement, as well as engaged actively in negotiations for the Joint Energy Transition Partnership with G7 countries both domestically and internationally. To realize these commitments, Vietnam needs swift and robust actions, including necessary amendments and supplements to relevant legal regulations. Additionally, Decision No. 942/QD-TTG approving the methane emission reduction action plan until 2030, Decision No. 876/QD-TTg approving the Action Program on Green Energy Transformation, Carbon Emission Reduction, and Methane Gas of the transport sector, and Decision No. 888/QD-TTg approving the Plan on tasks, solutions for the implementation of COP26 results were significant steps taken by Vietnam in this regard. Hence, there’s a clear urgency for these institutions to incorporate ESG considerations into their strategies and operations. This includes assessing and managing ESG risks, enhancing board members’ ESG knowledge, and integrating ESG criteria into capital management.
2. Discretion in Transparency Obligations:
Transparency obligations worldwide, such as the Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation by US and EU standards, are pushing Vietnamese financial institutions (who wants to join global financial market) to disclose more information regarding sustainable investments. Hence, forthcoming regulations may further shape reporting standards.
3. Duty of Care for Sustainable Investments:
Legislative changes in Vietnam are integrating sustainability considerations into financial services through the duty of care. This requires financial institutions to incorporate ESG factors throughout the customer journey, from product approval to contract stages. Regulations such as Securities Law or Decree 155/2020/ND-CP of the Securities Law provides detailed provisions regarding the disclosure of ESG-related indices. However, aligning regulatory duty of care with sustainability goals poses challenges and requires careful navigation by financial institutions.
4. Regulatory Landscape for Green Bonds:
The development of green bonds is one of the tasks outlined in the Market Development Roadmap for the period 2017-2020, with a vision until 2030, approved by the Prime Minister. Legal frameworks for issuing green government bonds (GGBs), green municipal bonds (GMBs), and green corporate bonds (GCBs) have been defined in legislative documents, such as Article 150 of the Environmental Protection Law, Article 21 of Decree No. 95/2018/ND-CP dated June 30, 2018. Meanwhile, the issuance of GMBs must comply with regulations on municipal bond issuance, and provincial People’s Committees must report the project portfolio using proceeds from the issuance of green municipal bonds according to the guidance of the Ministry of Finance. The organization of issuing municipal green bonds follows the approved project and the guidance of the Ministry of Finance. As for GCBs, they are regulated by Decree No. 153/2020/ND-CP. The organization of issuance, registration, depository, listing, and trading of GCBs is similar to that of regular corporate bonds. Vietnam has experienced several green bond issuances domestically and internationally in recent years, indicating significant potential for development in this area. Such policy directions as outlined in decisions like the Green Growth Strategy (Decision No. 1393/QD-TTg dated September 25, 2012), the National Action Plan on Green Growth (Decision No. 403/QD-TTg dated March 20, 2014), the Plan for Implementing the Paris Agreement on Climate Change (Decision No. 2053/QD-TTg dated October 28, 2016), and the Roadmap for Market Development (Decision No. 1191/QD-TTg dated August 14, 2017). Financial institutions must navigate this changing landscape, considering factors like alignment with regulatory standards and external reviewer requirements.
Some companies, such as Bamboo Capital, Trung Nam have issued green bond to domestic markets. BIM Land and VinGroup, have recently issued green bonds on the international market, with BIM Land, a member of BIM Group, successfully raising $200 million in 2021. Meanwhile, VinGroup pioneered the issuance of sustainable bonds with the option to receive shares worth $425 million.
Regarding green bond issuance, by October 2020, Vietnam had completed four green bond issuances totaling approximately $283.9 million (State Securities Commission, 2021). However, the current situation of green bond issuance in Vietnam still faces challenges. Compared to the size of Vietnam’s bond market in 2019 and the first nine months of 2020 ($104.6 billion and $324.1 billion, respectively), the value of green bond issuance remains insignificant. Several factors contribute to this, including a lack of specific regulations on the green concept and green bonds, difficulties in accessing relevant data, and a lack of policies to encourage businesses and investors to participate in the green bond market.
5. Data-Driven Supervision:
Vietnamese financial supervisors are increasingly relying on data-driven approaches for supervision. However, concerns arise regarding the legal basis for data requests and compliance with data protection regulations. Balancing the need for data collection with privacy considerations poses a significant challenge for financial institutions. Decree No. 13/2023/ND-CP on the Protection of Personal Data (PDPD), aims to enhance ICT risk management, in the financial sector particular. PDPD based on EU’s GDPR, requires companies that have major personal data resources to appoint chief information officer (CIO) and submit feasibility study (FS) to Ministry of Policy for data supervision. Vietnamese financial institutions must prepare for compliance with internal and external requirements, particularly concerning ICT service provider contracts. In addition to PDPD, Vietnamese financial institutions may need to comply with GDPR if they collect information from EU citizens (tourists, trading partners).
6. Crypto-currency Regulation:
So far Vietnam does not have regulation on crypto currency, although Vietnamese citizens are among the top three crypto currency owners in the World. Under Article 4.7 of Decree No. 101/2012/ND-CP (as amended by Clause 1, Article 1 of Decree No. 80/2016/ND-CP), illegal means of payment are those not included in the payment services recognized by law. Therefore, crypto-currency is not considered legal tender and cannot be used to replace cash for buying, selling, or making payments. The upcoming regulations will establish a new regulatory regime for crypto-asset service providers in Vietnam. Financial institutions need to assess their involvement in crypto-related services and prepare for compliance with such requirements. Already in Europe, the EU Commission set a new EU-wide regulatory regime for crypto-asset service providers for Market in Crypto Asset Regulations (MiCAR) will become applicable to the providers from 30 December 2024.
7. The Rise of AI:
AI is gaining prominence in Vietnam’s financial sector, prompting regulators to consider new frameworks to ensure ethical and sound AI use. Decision No. 127/QD-TTg, Vietnam aims to accelerate research, development, and application of AI, making it a pivotal technology field within the country’s Fourth Industrial Revolution. By 2030, Vietnam endeavors to become a hub for innovation, developing AI solutions and applications within the ASEAN region and globally. Specifically Vietnam aims to be among the top 3 countries in ASEAN and the top 50 globally for AI research, development, and application, with two national innovation centers for AI; increasing the number of AI startup businesses and total investment capital in the AI sector in Vietnam. Already AI is booming in many sectors such as healthcare, marketing, legaltech and fintech. Financial institutions must adapt to evolving AI regulations, which may impact their governance and distribution practices.
Overall
Vietnam’s financial sector faces unprecedented opportunities and a complex landscape of regulatory changes and technological advancements, requiring proactive adaptation by financial institutions to navigate the twin transition effectively.
Disclaimer: This Legal Update is intended to provide updates on the Laws for information purposes only, and should not be used or interpreted as our advice for business purposes. LNT & Partners shall not be liable for any use or application of the information for any business purpose. For further clarification or advice from the Legal Update, please consult our lawyers: Mr Le Net at net.le@lntpartners.com or Ms Minh Vu at minh.vu@lntpartners.com
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