Regulatory sandbox for peer-to-peer (P2P) lending is attracting public attention. (Photo: nld.com.vn) Onecontent which has been drawing big attention is regulatory sandbox forpeer-to-peer (P2P) lending.
Accordingto the central bank, the rapid development of fintech has posed many challengesto financial authorities in managing, supervising, ensuring security andsafeguarding interests of consumers and investors.
Thenumber of fintech companies has grown quickly from about 40 at the end of 2016to around 200 now, operating in various fiends such as payment, P2P lending,cryptocurrency and personal asset management, of which payment and P2P lendingare dominating the market.
“Mostof these fields have not been fully regulated, posing new risks to healthycompetition, financial stability, data security andclient interests,” the SBV said.
Inthe P2P lending activity that has emerged in Vietnam in recent years, thebanking watchdog has warned some firms use the name of P2P lending model todeceive people who lack information, advertise falsely such as high profits,high interest rates to cheat, appropriate people’s money to invest in thismodel or deceive borrowers about low interest rates, easy lending conditionswhile applying “exorbitantly high” actual interest rate.
Currently,about 100 firms including foreign-invested ones are offering P2P lendingservices in Vietnam.
Accordingto the SBV’s definition, P2P lending providers only act as an intermediary toconnect borrowers and lenders through their platforms. In the absence ofregulations, loans on P2P platforms would be considered as civil transactionsunder the 2015 Civil Code with the interest rate not exceeding 20 percent ofthe principal per year.
Howeverin reality, many lending apps operate like a credit institution when mobilisingcapital from organisations and individuals and then lending at “exorbitanthigh” interest rates of up to 300-400 percent per year.
Currently,most P2P platform providers in Vietnam have registered their businessactivities as investment consultation, commodity auction services, brokerage orIT services. Many agreements between the parties involved in the P2P lendingmodel (P2P lending firms, investors, borrowers, third parties) lack clarity andbinding due to under regulation so it may lead to disputes, lawsuits or evenswindling.
Accordingto financial expert Nguyen Tri Hieu, if managed closely, P2P lending can reducethe burden on banks because this model serves subprime loans – a segmentthat banks cannot accommodate due to compliance conditions and strictregulations according to the Law on Credit Institutions.
However,in the past, due to the lack of regulations, this sector operates like a blackcredit market.
"ManyP2P lending companies mobilise capital and lend like a credit institution. Soin the pilot testing mechanism, the SBV needs to control this situation,” Hieusaid.
Hesuggested that in the pilot mechanism, it is necessary to carefully select thecompanies participating in this field with strict requirements on financialcapacity, insurance percentage and loan limit to minimise risks on the society.
Tighten management
Currently,many governments advocate strict management of P2P lending. The US forbids P2Pplatforms from crediting the borrower’s loan directly to the lender, whileChina, after a period of relaxed experimentation, banned P2P lending after thedefault crisis in 2018 and 2019.
Lookingat the bursting of the P2P lending bubble in China, Indonesia has alsotightened management of this model, setting strict capital, registration andlicensing requirements.
InVietnam, the sandbox introduction aims to get first-hand experience in managingthe sector and allow fintech firms to test their novel products in a regulatoryenvironment. As a result, the SBV will allow some risks in the sandbox togain a better understanding of the dangers, thereby building a full-fledgedlegal framework that encourages innovation, prevents financial risk and promotesfinancial stability.
Accordingto the draft, P2P lending companies participating in the pilot mechanism maynot perform the following acts, including providing loan security,providing brokerage services for borrowing money for stock investments andother high-risk activities, unauthorised use of funds from customers.
Founders,managers in the P2P lending company must not take advantage of their positionto commit fraudulent acts, appropriate customers’ assets.
Thedraft decree also states that P2P lending firms must have a customer protectionmechanism. Guidelines must be issued and provided to the customers to adviseagainst the risks of participating in the use of the solution during the pilotperiod, as well as setting up a dispute settlement department.
Inthe draft, the trial period for fintech solutions is up to two years, dependingon the specific solution and field.
Accordingto experts, in addition to providing an additional channel to access capitalfor people, it is still necessary to manage and limit risks for society andborrowers and lenders. Besides the loan limit regulation, the SBV needs tomanage data, even have a server that connects directly to the floors of P2Plending businesses./.
VNA
