(Luận văn) law on digital banking in some countries and experiences for vietnam

MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS lu an va n LAW ON DIGITAL BANKING IN SOME COUNTRIES AND EXPERIENCES FOR VIETNAM p ie gh tn to d oa nl w Specialization: International Trade Policy and Law ll u nf va an lu PHAM THI QUYNH MAI oi m z at nh z m co l gm @ Hanoi – 2019 an Lu n va ac th si MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY ACKNOWLEDGEMENTS MASTER THESIS Firstly, I would like to express my deepest appreciation and thanks to my mentor, Dr Ha Cong Anh Bao for precious guidance, comments and suggestions lu an This paper is one of the last compulsory elements of Master of International va n Trade Policy and Law program at the Foreign Trade University The objective of this tn to LAW ON DIGITAL BANKING IN SOME COUNTRIES AND EXPERIENCES FOR VIETNAM study is to find out recommendations for Vietnam Government to enhance the ie gh development of digital banking I hope that the recommendations of this study will p be useful for the legislature in developing of policies and laws on digital banking in w the foreseeable future d oa nl Major: International Trade Policy and Law COMMITMENT an lu I would like to assure that the research of “Law on digital banking in some countries and experiences for Vietnam” was carried out by me All contents, tables, va Supervisor: Dr Ha Cong Anh Bao oi z at nh January, 2019 m Hanoi, Full name: Pham Thi Quynh Mai ll reliable source u nf figures, chart illustrated in this study are honest, accurate and quoted from a z Hanoi – 2019 m co l gm @ Pham Thi Quynh Mai an Lu n va ac th si TABLE OF CONTENTS LIST OF ABBREVIATIONS i LIST OF TABLES AND CHARTS iii ABSTRACT iv CHAPTER I: INTRODUCTION .1 lu an va 1.1 Research rationale 1.2 Literature review 1.3 Research questions 1.4 Scope of the research 1.5 Research methodology 1.6 Structure of thesis n CHAPTER II: Origin and development of digital banking 2.1.1 History of Digital Banking .4 ie gh tn to 2.1 OVERVIEW OF DIGITAL BANKING Electronic banking and digital banking p 2.1.2 Fintech and threats to bank w 2.1.3 Definition of law on digital banking .7 2.3 Main types of digital banking d oa nl 2.2 lu Digital is a brand 10 2.3.2 Digital banking is distribution channel 10 2.3.3 Digital bank is a subsidiary of traditional bank .10 2.3.4 Full-scale Digital bank 10 ll u nf va oi m 2.4 an 2.3.1 Main characteristics of digital banking 11 z at nh Automation 11 2.4.2 Decision making support 11 2.4.3 Innovation .11 2.4.4 OmniChannels .12 z 2.4.1 l gm @ 2.5 Advantages and disadvantages of digital banking .13 m co Advantages 13 2.5.2 Disadvantages 14 2.6 an Lu 2.5.1 The factors affect to digital banking .15 n va ac th si 2.6.1 Client centricity approach .15 2.6.2 Technological innovation 16 2.6.3 Organizational flexibility .16 2.6.4 Get creative with marketing 17 CHAPTER III: POLICY AND LAW ON DIGITAL BANKING 18 IN SOME COUNTRIES .18 3.1 Policy and Law on digital banking in some countries 18 lu an va 3.1.1 European Union 18 3.1.2 Thailand 22 3.1.3 Singapore 27 3.1.4 South Korea 32 3.1.5 China .38 n 3.2 Experiences for Vietnam 44 Lessons learned from selected countries 44 3.2.2 Risk Identification and Mitigation Mechanism .48 ie gh tn to 3.2.1 POLICY AND LAW ON DIGITAL BANKING IN VIETNAM .54 p CHAPTER IV: Digital banking development in Vietnam .54 lu Opportunities and challenges 68 va an 4.2 Case Study 64 d 4.1.2 Overview .54 oa 4.1.1 nl w 4.1 Opportunities 68 4.2.2 Challenges .69 ll u nf 4.2.1 Policy and Legal framework on digital banking in Vietnam 71 oi m 4.3 Policies of the Government of Vietnam on digital banking 72 4.3.2 Vietnam Laws on digital banking 75 RECOMMENDATIONS FOR VIETNAM ON AMENDMENT z CHAPTER V: z at nh 4.3.1 @ gm OF LAW ON DIGITAL BANKING 82 E – KYC mechanism 82 5.2 Non-cash Payment .83 5.3 Authorized agents of banks 84 5.4 Electronic banking accounting vouchers 85 5.5 Regulation on loans 87 m co l 5.1 an Lu n va ac th si 5.6 Regulatory Sandbox .88 5.7 Protection of Customers’ information and Data Security 89 5.8 Adoption and Application of new technology 90 5.8.1 Artificial intelligence .90 5.8.2 Open APIs 92 5.8.3 Block chain 92 CHAPTER VI: CONCLUSION 94 LIST OF REFERENCES 96 lu an n va p ie gh tn to d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si LIST OF ABBREVIATIONS Artificial Intelligence API Application Programming Interface ATM Automated Teller Machine BOK Bank of Korea BOT Bank of Thailand CEO Chief Executive Officer CRM Customer Relationship Management E-banking Electronic banking eIDAS Electronic Identity and Electronic Services Directive 2014 eKYC Electronic Know Your Customer process lu AI an n va p ie gh tn to EU European Union nl w d EU General Data Protection Regulation an lu GDPR Financial Technology oa FinTech Government Technology Agency in Singapore ID Identity Card KFTC Korea Financial Telecommunications & Clearings Institute ll u nf va GovTech oi m z at nh KPMG is a global network of professional firms providing Audit, Tax and Advisory services LOS Loan Origination System LVPS Large-Value Payment System MAS Monetary Authority of Singapore z KPMG m co l gm @ an Lu n va ac th si LIST OF ABBREVIATIONS NIS Network and Information Security Directive 2016 The OCBC Bank group comprises a family of companies lu an n va owned by Singapore's longest established local bank P2P Peer-to-Peer PDPA Personal Data Protection Act 2012 of Singapore PIPA Personal Information Protection Act of Korea POS Point of Sale PSD1 The Payment Services Directive 2007 PSD2 Payment Services Directive 2015 gh tn to OCBC Bank p ie PricewaterhouseCoopers is a global network of Retail Payment Systems lu State Bank of Vietnam va an Single Euro Payment Area ll u nf SEPA d SBV oa RPS services nl PwC w professional firms providing Audit, Tax and Advisory oi m z at nh z m co l gm @ an Lu n va ac th si LIST OF TABLES AND CHARTS TABLES Table 1: Top Centers in GFCI 24 .28 Table 2: Number of ATMs per 100,000 adult population and over 1000 km2 of some countries in 2016 55 CHARTS Chart 1: Thailand’s internet and mobile banking transaction volume 22 lu an Chart 2: South Korean Internet-only banks take off 33 n va Chart 3: Adoption of internet banking and mobile banking in China 39 tn to Chart 4: Executive Responeses on Digital Security Vulnerabilities Faced by gh Stakeholders (%), Q2 2017 50 p ie Chart 5: Growth rate of ATM transaction and value 56 w Chart 6: The groth rate of POS, quantity transactions 57 oa nl Chart 7: The number and value of transactions via Internet banking and mobile d banking in the period 2015 - 2016 58 an lu Chart 8: The number and value of electronic wallet transactions during the year of ll u nf va 2012 to 2016 60 oi m z at nh z m co l gm @ an Lu n va ac th si ABSTRACT In Vietnam, the Prime Minister has approved Decision No.986/QD-TTg on the Development Strategy of the Vietnam Banking Sector to 2025, with orientations to 2030 which also aims to develop digital banking in order to create a basis for improving access to banking services, in particular, broadening the network of traditional channels in combination with enhancing the development of modern banking channels (electronic banking, mobile banking, internet banking, etc.,) through the application of technical advances Policies on digital banking are made up of two components, namely the digital banking policy and law; and the lu application of technical advances Researching policy and law governing the digital an va banking is meant to be the fundamental and priority condition to facilitate both n components This research selected policy and law in EU, Singapore, Thailand, tn to South Korea and China as the mirror for Vietnam thereby giving some ie gh recommendations for Vietnam Government to amend and supplement policy and p law on digital banking d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si CHAPTER I: 1.1 INTRODUCTION Research rationale The world is coming to a new era of innovation that will change the relationships between banks and their customers Old-fashioned banks suffer from numerous drawbacks, because they are far behind the latest technological breakthroughs in the 21 century’s the digital economy Thanks to innovations in information technology and mobile telecommunications adoption, there is an increasing trend in digital banking solutions Digital banking is a valuable investment opportunity because traditional banks or even online banking are no longer able to lu adequately service their customers' requirements in the digital revolution an n va Customer needs cannot be satisfied by traditional banks which is unable to catch up tn to with the digital ages The customers prefer digital banking to traditional banks due to its convenience and time savings In Vietnam, according to a survey conducted by gh p ie IDG Vietnam, 81% of surveyees responded that they used digital banking solutions w in 2017 compared to 21% in 2015 (Fintechnews Vietnam, 2018) oa nl Digital banking not only offers great opportunities for banks, but also brings d many challenges for both banks and state agencies Banks shall have to clarify how lu an to meet the high expectations of customers; utilize new technologies, prevent u nf va network security threats and protect customers’ information while the state agencies are being challenged by the protection of consumer interests, dealing with ll m oi the risk of network security/data privacy and balancing management with z at nh innovation and competition In order to meet market demand and international integration timely, many z gm @ domestic banks have actively applied new technological solutions to simplify the process and increase the coverage of products and services efficiently However, l implementation of these solutions faces many challenges due to incomplete legal m co corridors Therefore, the adjustment and updating of policy and laws in line with the an Lu inevitable reform of banking technology is really necessary and decisive for the n va long-term development of digital banking in Viet Nam ac th si 100 33 FintechnewsVietnam, 2018, Digital banking sees prosperous future in Vietnam, available at http://fintechnews.sg/22785/vietnam/digital-bankingfuture-in-vietnam/ check in December 2018 Fivedegree, What is digital banking, available at 34 https://www.fivedegrees.com/digital-banking/what-is-digital-banking check in 16 December 2018 35 Global Legal insights, 2018, Korea Banking regulations 2018 available at https://www.globallegalinsights.com/practice-areas/banking-and-financelaws-and-regulations/korea check in October 2018 lu 36 InstaPay, 2018, EPC launches SEPA Credit Transfer and Direct Debit rulebook an va consultation, available at https://www.instapay.today/article/epc-launches- n sepa-credit-transfer-and-sepa-direct-debit-rulebook-consultation/ , check in to gh tn 19 October 2018 Institute for Development and Research in Banking Technology, 2016, p ie 37 oa nl 39 IntelAsia, Finance Vietnam, 2018, page w 38 Digital banking framework, page 10 I-scoop, 2017, The digital banking ecosystem 2017: geopolitical and d an lu regulatory challenges, available at https://www.i-scoop.eu/digital-banking- 40 u nf va gepolitical-regulatory-challenges/ check in 17 October 2018 Jim Marous, 2017, The rise of the Digital –only banking customers, available ll https://thefinancialbrand.com/65628/digital-banking-consumer-trends/, 41 Joyce Yang, 2018, Thailand is becoming a critical country for blockchain, https://techcrunch.com/2018/08/31/thailand-blockchain/ l gm check in 16 December 2018 , @ at z available 42 z at nh check in December 2018 oi m at Juliane Wolff, 2017, New European Digital Banking Study by Mastercard m co highlights convenience as the greatest advantage of digitized banking an Lu solutions, available at https://newsroom.mastercard.com/eu/press-releases/ n va new-european-digital-banking-study-by-mastercard-highlights-convenience- ac th si 101 as-the-greatest-advantage-of-digitized-banking-solutions/ check in 17 October 2018 43 Kwang Bae Park, Ju Bong Jang, Lee&Ko, 2017, The Privacy, Data Protection and Cybersecurity Law Review - Edition 4, available at https://thelawreviews.co.uk/edition/the-privacy-data-protection-andcybersecurity-law-review-edition-4/1151290/korea check in 22 December 2018 44 Linda Rodriguez McRobbie, 2015, The ATM is Dead Long Live the ATM!, available at https://www.smithsonianmag.com/history/atm-dead-long-live- lu atm-180953838/#wkeLB3H1umgShe6i.99, check in December 2018 an MAS, n va 45 2017, MAS Establishes Payments Council available at tn to http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MASEstablishes-Payments-Council.aspx gh Master Card, 2017, New European Digital Banking Study by Mastercard p ie 46 w highlights convenience as the greatest advantage of digitized banking oa nl solutions, available at https://newsroom.mastercard.com/eu/press-releases/ d new-european-digital-banking-study-by-mastercard-highlights-convenience- lu December 2018 in 16 u nf 47 check va an as-the-greatest-advantage-of-digitized-banking-solutions/ Michael Zhu, 2018, Digital Banking Trends, available at ll oi m https://www.morganmckinley.com.cn/en/article/2018-digital-banking-trends 48 z at nh check in 16 October 2018 Neil Gough, 2016, Online Lender Ezubao Took $7.6 Billion in Ponzi z @ Scheme, China Says, available at m co 49 l fraud.html, check in 18 December 2018 gm https://www.nytimes.com/2016/02/02/business/dealbook/ezubao-china- Nelito, Overview – Loan Origination Solution, available at check in 24 October 2018 an Lu https://www.nelito.com/lending-solutions/loan-origination-solution.html n va ac th si 102 50 Oxford business group, 2016, Banking in Thailand goes increasingly digital available at https://oxfordbusinessgroup.com/analysis/going-digital- digitalisation-becoming-norm-banking-sector 51 Rajendra Kumar Tolety, Digitalize or Die – The Road Ahead for Indian Banking, 2018, p.2 52 Raju Gopalakrishnan, Manuel Mogato, 2016, Bangladesh Bank official's computer was hacked to carry out $81 million heist: diplomat, available at https://www.reuters.com/article/us-cyber-heist-philippines/bangladeshbank-officials-computer-was-hacked-to-carry-out-81-million-heist-diplomat- lu idUSKCN0YA0CH check in 16 December 2018 an Reuters, 2018, Timeline: How Danske Bank's Estonian money laundering scandal unfolded, available at https://www.reuters.com/article/us-danske- n va 53 to money-laundering-scandal-unfolded-idUSKCN1NO209 , check in 25 December 2018 p ie gh tn bank-moneylaundering-timeline/timeline-how-danske-banks-estonian- Sohn Ji-Young, 2018, Korea No worldwide in smartphone ownership, nl w 54 d oa internet penetration, available at an lu http://www.koreaherald.com/view.php?ud=20180624000197, check in 13 December 2018 va Somruedi Banchongduang, 2018, K Plus dreams of 100 million users, u nf 55 ll available at https://www.bangkokpost.com/business/news/1555686/k-plus- m oi dreams-of-100-million-users check in 13 December 2018 z at nh 56 Sonia Barquin and Vinayak HV, 2016, Buiding a Digital Banking Business, available at https://www.mckinsey.com/industries/financial-services/our- z The Global Financial Centers Index 24 – September 2018 available at https:// l 57 gm @ insights/building-a-digital-banking-business check in 16 October 2018 The New York times, 2015, Online Lender Ezubao Took $7.6 Billion in Ponzi Scheme, China Says, available at an Lu 58 m co www.zyen.com/media/documents/GFCI_24_final_Report.pdf n va ac th si 103 https://www.nytimes.com/2016/02/02/business/dealbook/ezubao-chinafraud.html check in October 2018 59 The Standard, 2017, BOC, Tencent establish joint financial technology lab available at http://www.thestandard.com.hk/breaking-news.php?id=92079 check in October 2018 60 Vinayak Konasirasgi, Need for Automation in LOS (Loan Origination System) 2016, available at https://www.linkedin.com/pulse/need-automation-losloan-origination-system-vinayak-konasirasgi/ check in 24 October 2018 61 Wikipedia, Single Euro Payments Area, available at lu https://en.wikipedia.org/wiki/Single_Euro_Payments_Area an check in 19 n va October 2018 William Watterson, 2018, 2018 will be the year of open banking Here’s tn to 62 everything you need to know, available at check p ie gh https://thenextweb.com/worldofbanking/2018/06/27/openbanking/ Wong Casandra, 2017, MyInfo extended to private sector, allowing oa nl 63 w in 17 October 2018 d businesses to tap citizen data for digital services, available at an lu https://www.channelnewsasia.com/news/singapore/myinfo-extended-to2018 ll u nf va private-sector-allowing-businesses-to-tap-9395540, check in 18 December World core, 2017, Most cashless nations of the world, where consumers still oi m 64 z at nh prefer cash despite heavy fines, available at https://worldcore.eu/blog/cashless-nations-world-consumers-still-prefer- z cash-despite-heavy-fines/ check in 16 October 2018 @ Yoon Yung Sil, 2017, Kakao Bank Fever Confirms Power of Kakao Talk m co l Platform, available at gm 65 http://www.businesskorea.co.kr/news/articleView.html?idxno=18917, check an Lu in 13 December 2018 n va ac th si 104 BỘ GIÁO DỤC VÀ ĐÀO TẠO MINISTRY OF EDUCATION AND TRAINING TRƯỜNG ĐẠI HỌC NGOẠI THƯƠNG FOREIGN TRADE UNIVERSITY CỘNG HOÀ XÃ HỘI CHỦ NGHĨA VIỆT NAM SOCIALIST REPUBLIC OF VIETNAM Độc lập - Tự - Hạnh phúc Independence – Freedom – Happiness Hà Nội, ngày 25 tháng năm 2019 Hanoi, 25th June 2019 BẢN XÁC NHẬN CHỈNH SỬA LUẬN VĂN THẠC SĨ CONFIRMATION OF THE MASTER THESIS AMENDMENTS THEO KẾT LUẬN CỦA HỘI ĐỒNG ĐÁNH GIÁ LUẬN VĂN lu IN ACCORDANCE WITH CONCLUSIONS OF THE EVALUATION COMMITTEE an va n Học viên cao học (Master student): Phạm Thị Quỳnh Mai tn to Chuyên ngành (Major): Master of International Trade Policies and Law gh Đề tài luận văn (Topic): Law on digital banking in some countries and experiences p ie for Vietnam w Người hướng dẫn khoa học (Thesis instructor): Dr Hà Công Anh Bảo nl Căn kết luận Hội đồng đánh giá luận văn thạc sĩ (được thành lập theo Quyết d oa định số ngày Hiệu trưởng Trường Đại học Ngoại thương), học an lu viên bổ sung, sửa chữa luận văn thạc sĩ theo nội dung sau: va Pursuant to the conclusions of the Evaluation Committee (established according to u nf Decision No dated .of the President of Foreign Trade University), the ll post graduate student did the amendments as follows: oi Literature review m z at nh Clearly pointing out the research gap in the literature review, as following: “Thus, all of the researches mentioned above are tended to focus on an z specific aspect of the law on digital banking such as: the appearance of @ gm digital banking, competitiveness between fintech and banks, financial risk l and data protection, experiences on management and development of m co digital banking, eKYC, etc., Up till now, however, there has not been a comprehensive, large-scale study in terms of laws on digital banking of an Lu several countries (including EU, Singapore, Thailand, South Korea and n va China) in order to evaluate (i) experiences for Vietnam; (ii) ability of ac th si 105 Vietnam to learn from experiences from such countries; (iii) opportunities and challenges when application of such countries’ experiences on digital banking law as well as recommendations for Vietnam government to amend and/or supplement laws on digital banking” Definition of law on digital banking: Adding the Definition of law on digital banking in Section 2.2, as following: “As a result, Law on digital banking is a system of rules on Digital banking that are created and enforced by a state to regulate behavior amongst state agencies (i.e government, state bank), credit institution (commercial banks, lu fintech) and customers including but not limited to (i) the establishment, an operation, management of digital banks; (ii) requirements and conditions va n for the credit institution when providing digital banking product and to tn services; (iii) rights and obligations of the customer when using digital p ie gh banking product and services.” Chapter 3: w (i) oa nl Clarifying the law perspective in Chapter 3, as following: “3.1.Policy and Law on digital banking in some countries d an lu 3.1.1 European Union va b Legal framework u nf Up till January 2019, there are of 28 Member States including Denmark, ll the Netherlands, Poland and the UK having established the Regulatory m oi sandboxes which is a closed environments allowing testing of innovations z at nh by financial institutions under the regulator’s supervision In the case of the UK, the UK Financial Conduct Authority has enacted the Innovate z Regulatory Sandbox in 2016 Under the Financial Conduct Authority’s @ gm Regulatory Sandbox, the process for a financial institution to apply the l regulatory sandbox including steps, including: (i) Firm proposal to use m co sandbox; (ii) Financial Conduct Authority assessment; (iii) Firm and an Lu Financial Conduct Authority collaborate and agree the testing approach; (iv) delivery of sandbox option and; (v) testing and monitoring; (vi) firm n va submits final report for Financial Conduct Authority’s final review; and ac th si 106 (vii) firm decides whether it will offer solution In general, the financial institution’s new solution must be proved to meets the criteria by several tests If the final report on such new solution is approved by Financial Conduct Authority, the financial institution shall make decision on whether it will offer the new solution outside the sandbox or not Regulatory sandbox enable the financial institutions to reduce cost related to compliance consultants and lawyers as well as fast-track the regulatory process while offers a safe space with safeguards to customer using new financial services and products.” lu (ii) “3.1.Policy and Law on digital banking in some countries an 3.1.2 Thailand va b Legal framework n tn to In order to encourage the development of financial technology innovations, gh Bank of Thailand established a regulatory sandbox on 21 December 2016 p ie Accordingly, the regulatory sandbox specifies qualifications for operate within the regulatory sandbox This regulation enable participants nl w participation and rules to be followed once permission is granted to d oa such as financial institutions, fintech firms, and general tech firms to test lu new technology in financial services including lending, payment, or any va an other type of transaction within the scope of authority of the Bank of u nf Thailand Besides, participants are still required to have licenses that are ll necessary to conduct their intended businesses as well as comply with the oi m laws that are beyond the authority of the BOT, such as laws relating to z at nh electronic transactions, anti-money laundering, and anti-terrorism In granting permission to participate in the regulatory sandbox, participants z shall have to set out measures to manage corporate governance, security @ “3.1.Policy and Law on digital banking in some countries 3.1.3 Singapore an Lu b Legal framework m co (iii) l gm and integrity of IT systems as well as protection of customer information.” n va ac th si 107 Regarding lending-based crowd funding or the so called P2P lending, the lending is carried out by means of online platform which is regulated under the Securities and Futures Act (Cap.289) and the Financial Advisers Acts (Cap 110) In Singapore, P2P lending allows many investors lend sums of money to a enterprise (which is not an individual) and the lender shall receive such enterprise’s legally-binding commitment to repay the loan at pre-determinded time and specific interest rates Accordingly, the operator of the lending platform is required to hold a license namely capital markets services under Securities and Futures Act Besides, an invitation to lend a sum of money of a company is also regarded as the debentures, which is a lu type of security In such context, to be funded by the investors, borrower an shall have to prepare and register a prospectus with MAS in accordance va with Securities and Futures Act unless it take the advantages of several n tn to prospectus exemptions including (i) small offers ($5 million within 12- gh month period); or (ii) private placements (issuing debentures to no more p ie than 50 person within 12-month period); or (iii) offers of debentures to protect the investor from the risks beyond their actual capacity where their nl w investors such as institutional investors and accredited ones In order to d oa funds may wiped out, lenders on P2P platforms must be accredited lu investors whose net worth of at least SG$2 million or an income of at least “3.1.Policy and Law on digital banking in some countries ll (iv) u nf va an SG$300,000 in the past 12 months oi z at nh b Legal framework m 3.1.4 South Korea The Korean National Assembly passed the Korean Act on Special Cases z Concerning the Establishment and Operation of Internet Banks (hereinafter @ gm as “Act on Internet-Only Banks”) takes effect from 17 January 2019 l Accordingly, Internet Bank is defined as “banks engaged in the banking m co business by means of electronic financial transactions”(Act on InternetOnly Bank, Article 2) Internet Banks provide their banking products and an Lu services through electronic financial transactions where there is no directly n va meeting or communication between the bank officers and customer ac th si 108 However, Internet-Only Bank internet Bank still have to comply with other provision of Banking Act Besides, Act on Internet-Only Banks provide several guidance on conditions of services of Internet Banks, for example, only corporations such as small- and medium-sized companies shall receive a loan from internet-only banks (Act on Internet-Only Banks, Article 6); prohibition of extending to major shareholders (Act on Internet-Only Banks, Article 8-10) Regarding the regulatory sandbox, the South Korea Special Act on Financial Innovation Support has taken effect from April 2019 Under the special act, a regulatory sandbox is a mechanism for the development of lu regulations that not unduly slow down the pace of innovation an Accordingly, financial institutions which are approved by the Financial va Services Commission to use the regulatory sandbox are exempt from n tn to current financial regulations Besides, participating companies must seek gh Financial Services Commission prior approval in terms of consumer p ie protection and risk management plans in order to protect consumers from “3.1.Policy and Law on digital banking in some countries d oa (v) nl w potential harm lu 3.1.5 China va an b Legal framework u nf With regard to internet banking, Rules on the Administration of Electronic ll banking (the “Rule”) was enacted by China Banking Regulatory oi m Commission in 2006 in order to strengthen the risk management in z at nh conducting electronic banking transactions as well as protect the rights and interests of the customers Accordingly, electronic banking services z provided by the banks through internet, telephone, mobile phone and other @ gm digital devices and networks shall have to meet the requirement of the Rule l In general, there are several conditions which the service providers must m co comply with, including: (i) seeking for CBRC’s approval before conducting domestic and/or cross-border electronic banking business; (ii) setting up an Lu the internal and external risk management and evaluation as well as n va establishing the risk department Within the scope of domestic e-banking ac th si 109 businesses, banks are required to have plans and strategy, competent personnel and internal system to control and mange risks associated with the operation of e-banking businesses; and protect the legitimate rights of their customers In addition to the requirements mentioned above, when doing cross-border e-banking businesses which mean that a Chinese bank using e-banking platform to provide e-banking services to customer, banks shall have to comply with the laws of the country where the customers reside Besides, Chinese banks take the responsibilities to report to China Banking Regulatory Commission the detail of the cross-border banking transaction including: (i) scope of services; (ii) contractual agreement with lu the customers Besides, under the Rule, banks are required to report to an China Banking Regulatory Commission regarding the development, va operation, profitability, and internal risk management and extern al n tn to professional evaluation of their e-banking businesses Together with the gh self-evaluation of each financial institution, each bank have to engage a p ie third party which is an independent qualified valuation firm recognized by of their e-banking system The Rules also set out provision which impose nl w China Banking Regulatory Commission to carry out a security evaluation d oa the banks’ liabilities for any damages suffered by the banks’ customers in lu the event if the damages is not caused by factors attributable to consumer, such banks ll u nf va an including illegal operation of e-banking systems, or security problems of Lessons learned from selected countries oi m z at nh Adding more information to draw experiences for Vietnam, as following: “3.2.1 Lessons learned from selected countries Payment system z a @ gm It can be seen from section 3.1 above that all of the selected countries have l enacted laws on facilitating the payment system Each countries often m co establish a State Agency in order to govern the law on electronic payment, for example: European Payments Council, Bank of Thailand, Monetary an Lu Authority of Singapore, Korea Financial Telecommunications & Clearings China Banking Regulatory Commission By means of n va Institute, ac th si 110 promulgation of laws and legal regulation, the governor in each countries take the leading rode in guidance or supervision on financial institution in providing the electronic banking payment transactions As a very first step of the process between banks and customers in payment transactions, e-KYC and e-ID have been used by banks as mechanisms in digital platform to ensure effective and accurate identification and verification of customers This identification and verification method has been applied in almost selected countries Besides, setting up a limit on payment transactions’ value is another fundamental mechanism which has been chosen by the governor of the selected countries in their digital lu banking law In particular, any and all purchase agreement with total value an of €1,000 or more must be carried out by electronic payment method in va Italy – an EU Member States where the payment system in Korea consists n tn to of a large-value payment system (LVPS) and other retail payment systems gh (RPS) p ie In Vietnam, the Government and Payment Department under the State Bank regulations on digital payment transaction Due to the habits of using cash nl w of Vietnam is responsible for guidance as well as supervision on the legal d oa in payment as well as limited knowledge of digital banking services, lu customers not get used to digital banking payment system Because of va an such gaps, the Government has issued the Plan on non-cash payment in u nf Vietnam in the 2016-2020 period approved by the Prime Minister, by the ll end of 2020, the ratio of cash transactions should be reduced to below 10% oi m in order to orient the state agencies as well as the commercial banks z at nh Regarding the identification and verification method, the draft of the amended Decree No.116/2013/ND-CP dated October 2013 of the z Government detailing the implementation of a number of articles of the @ gm Law on money laundering prevention and control is being amended to l enable banks to implement eKYC, eID to facilitate the provision of products m co and services to customers, minimizing unnecessary procedures Besides, as the governor, the Payment Department under the State Bank of Vietnam has an Lu hold a number of workshops with the participant of commercial banks and n va experts from countries having successfully implemented the law on digital ac th si 111 banking in term of payment system to train the Government and SBV’s officers as well as enable commercial banks to learn experiences in providing the digital services, Vietnam has the opportunity to achieve the target of Plan on non-cash payment in Vietnam in the 2016-2020 period b Regulatory Sandbox Innovations and new technologies shall obviously reduce the cost of providing specific services for the financial institution However, it also give rise to greater financial risk including financial crises, higher banks’ fragility; excessive credit expansion As a result, the selected countries have paid attention to the regulatory sandboxes which enables live testing of new lu technologies by fintech under the strict supervision of the regulator an In general, before application of any innovations in regulatory sandbox, a va company should submit the proposal setting out such innovation’s n tn to description; conditions; and consumer protection and risk management gh plans to the State Agencies In term of the risk appetite, each country has p ie promulgate its own laws and legal regulation on the application of relevant laws; or (ii) exempt from some strict requirements; (iii) exempt nl w regulatory sandbox which impose the participants to (i) comply with d oa from current financial regulations In particular, in Thailand, participants lu are still required to have licenses that are necessary to conduct their va an intended businesses as well as comply with the laws that are beyond the u nf authority of the Bank of Thailand As for Singapore, MAS support the ll participant in the reduction of some strict requirements for the product oi m during the test Besides, financial institutions in South Korea which are z at nh approved by the Financial Services Commission to use the regulatory sandbox are exempt from current financial regulations z In Vietnam, the State Bank of Vietnam is in the course of drafting legal @ gm framework on regulatory sandbox for fintech activities in Vietnam l including several issues such as agency banks, crypto currencies, policies m co on banking operations SBV in collaboration with the Asian Development Bank (ADB) and VinaCapital Ventures, organized a workshop on an Lu “International Experience in Fintech Regulatory Sandbox” on September n va 25, 2018 with the participation of relevant ministries and agencies in order ac th si 112 to acquire in-depth understanding of the model of Fintech Regulatory Sandbox in other countries and the possibilities of application and formulation of a similar model in Vietnam Thus, Vietnam should pay attention to the conditions for participant to participate in the regulatory sandbox as well as procedure to approve the test of the innovations Besides, based on the innovation and new technologies compared with the risk management mechanism, SBV should consider to which risk appetite is acceptable, whether the participants shall comply with prevailing laws and regulations or may be exempted from some strict regulations Vietnam has witnessed significant growth in fintech companies As of lu September 2018, there have been 78 institutions licensed by the SBV to an provide online payment services, 41 institutions providing mobile payment va solutions, 27 institutions providing payment intermediary services, and 12 n tn to banks implementing the QR Code payment services with 5000 points gh accepting QR Code payments (SBV, 2018) As a result, Vietnam has the p ie ability to learn from international experience in legal framework and risk c P2P lending nl w management from selected countries d oa Peer-to-peer (P2P) business loans have grown rapidly in recent years in lu helping small and medium enterprises grow The lessons learned from va an China’s P2P lending fraud (Ezubao) will help regulators in Vietnam avoid u nf making the same mistakes while preventing malpractices in the P2P ll industry Regulators in selected countries (i.e South Korea and China) oi m have made a number of attempts in implementing multiple new policies and z at nh laws to control these risks arising out of the P2P lending At the very first step of P2P lending process, e-KYC and anti-money laundering regulations z should be a prerequisite condition Accordingly, the identity of the @ gm borrower or investor must be verified by the P2P platforms by means of l their passports, drivers’ licenses, or a government-issued ID E-KYC plays m co an important part in the success of P2P transactions due to the fact that P2P lending are carried out online and without direct face-to-face contact an Lu between the lenders and borrowers In addition, several measures n va obligatory have been imposed on the lenders For example, MAS requires ac th si 113 that escrow accounts must be used by P2P lenders In order to protect the investor from the risks beyond their actual capacity where their funds may wiped out, lenders on P2P platforms must be accredited investors whose net worth of at least SG$2 million or an income of at least SG$300,000 in the past 12 months Pursuant to Singapore Securities and Futures Act (Cap.289), all P2P platforms are regulated by MAS and the operator of the lending platform is required to hold a license namely capital markets services under Securities and Futures Act Following China’s P2P lending fraud (Ezubao), Action Plan on Regulation of Online P2P Lending Risks has been issued by the China Government in April 2016 to regulate P2P lu lending activities and lending intermediaries’ activities As a result, lending an intermediaries must obtain a Telecommunications business license and va appoint a bank to serve as a custodian of customer funds Besides, control n tn to measures should not become too rigid so as to attract both investors and gh borrowers to participate in P2P lending p ie In Vietnam, there are 40 P2P companies providing lending platform for service providers have been proved to violate the prevailing laws of nl w investors and borrowers However, the operation of a number of such d oa Vietnam, including: providing inaccurate information related to risks; lu falsely advertising profits, lending at very high interest rates (i.e exceeding va an the interest rate cap of 20 per cent per year) According to Deputy Prime u nf Minister Vuong Dinh Hue, before officially promulgating a specific law ll governing the P2P lending transactions, the Government will soon issue a oi m decision to allow a pilot implementation of peer-to-peer (P2P) lending in z at nh the country Accordingly, P2P lending would be restricted to connecting lenders and borrowers during the pilot operation P2P lending companies z which are regarded as intermediaries to connect lenders and borrowers @ gm would not be allowed to mobilize capital from the credit institutions At the l same time, financial institutions will not be allowed to take part in P2P m co lending transaction during the trial operation However, following the model in selected countries mentioned above, banks may participate in the an Lu P2P lending transaction as a custodian of customer funds in the near n va future As the lesson learned from China’s P2P lending crisis, the Decision ac th si 114 on P2P lending Pilot does not mean that Vietnam’s regulators limit the development of the new lending method but a due and necessary step before the official law on P2P lending.” Moving the content of Section 3.2.1 into Chapter 4.1 Replacing Section 4.2 and 4.3 before 4.1 Title of Chapter Changing the title of Chapter to “Recommendations for Vietnam on amendment lu of law on digital banking” an va NGƯỜI HDKH Supervisor n HỌC VIÊN CAO HỌC Master student CHỦ TỊCH HỘI ĐỒNG Chair of the Committe p ie gh tn to THƯ KÝ HỘI ĐỒNG Secretary of the Committee d oa nl w ll u nf va an lu oi m z at nh z m co l gm @ an Lu n va ac th si