Regulatory sandbox for P2P lending requires strict requirements


VIETNAM, April 25 –

The regulatory sandbox for peer-to-peer (P2P) lending is attracting public attention. — Photo nld.com.vn

Compiled by Mai Hương

Earlier this month, the State Bank of Việt Nam (SBV) announced a new draft decree providing for a controlled testing mechanism (sandbox) for fintech activities in the banking sector. This is the second project that has been built to gather public opinions for this sector.

One piece of content that has caught a lot of attention is the regulatory sandbox for peer-to-peer (P2P) lending.

According to the central bank, the rapid development of fintech has posed many challenges for financial authorities to manage, supervise, provide security and safeguard the interests of consumers and investors.

The number of fintech companies has grown rapidly from around 40 at the end of 2016 to around 200 today, operating in various fields such as payment, P2P lending, cryptocurrency and personal asset management, including P2P payment and lending dominate the market.

“Most of these areas have not been fully regulated, posing new risks to healthy competition, financial stability, data security and customer interests,” the SBV said.

In the P2P lending business that has emerged in Việt Nam in recent years, the banking watchdog has warned that some companies are using the P2P lending model name to deceive people who lack information, make false advertisements such as high profits, high interest rates to cheat, grab people’s money to invest in this model or trick borrowers into low interest rates, easy loan terms while applying rates “exorbitant” real interest rates.

Currently, about 100 companies, including those with foreign capital, offer P2P lending services in Việt Nam.

According to SBV’s definition, P2P lending providers only act as an intermediary to connect borrowers and lenders through their platforms. In the absence of regulation, loans on P2P platforms would be considered civil transactions under the Civil Code of 2015 with an interest rate not exceeding 20% ​​of the principal per annum.

However, in reality, many lending apps operate like a lending institution when they raise capital from organizations and individuals and then lend at “exorbitant” interest rates of up to 300-400% per annum.

Currently, most P2P platform providers in Việt Nam have registered their business activities as investment advisory, commodity auction services, brokerage or IT services. Many agreements between parties involved in the P2P lending model (P2P lenders, investors, borrowers, third parties) lack clarity and linkage due to under-regulation, which can lead to litigation, lawsuits or even scams.

According to financial expert Nguyễn Trí Hiếu, if managed closely, P2P lending can reduce the burden on banks because this model serves subprime lending – a segment that banks cannot support due to credit conditions. compliance and strict regulations in accordance with the law on credit institutions.

However, in the past, due to the lack of regulation, this sector functioned as a credit black market.

“Many P2P lending companies raise capital and lend like a credit institution. So in the pilot test mechanism, SBV needs to control this situation,” Hiếu said.

He suggested that in the pilot scheme, it is necessary to carefully select companies participating in this field with strict requirements on financial capacity, percentage of insurance and loan limit in order to minimize risks to society.


Tighten management

Currently, many governments advocate strict management of P2P loans. The United States bans P2P platforms from crediting the borrower’s loan directly to the lender, while China, after a period of relaxed experimentation, banned P2P lending after the default crisis in 2018 and 2019.

Faced with the bursting of the P2P lending bubble in China, Indonesia has also tightened the management of this model, setting strict capital, registration and licensing requirements.

In Việt Nam, the introduction of the sandbox aims to gain first-hand experience in managing the sector and to allow fintech companies to test their new products in a regulatory environment. As a result, the SBV will allow certain risks in the sandbox to better understand the dangers, thereby creating a full-fledged legal framework that encourages innovation, prevents financial risks and promotes financial stability.

According to the draft, P2P lending companies participating in the pilot scheme cannot perform the following acts, including providing loan collateral, providing brokerage services to borrow money for equity investments and other activities high-risk, unauthorized use of client funds.

The founders, managers of the P2P loan company must not take advantage of their position to commit fraudulent acts, to appropriate the assets of the customers.

The draft decree also specifies that P2P lending companies must have a customer protection mechanism. Guidelines must be issued and provided to customers to prevent the risks of participating in the use of the solution during the pilot period, as well as the establishment of a dispute resolution service.

In the project, the trial period for fintech solutions can be up to two years, depending on the specific solution and domain.

According to experts, in addition to providing an additional channel of access to capital for people, there is still a need to manage and limit risks for society and borrowers and lenders. In addition to lending limit regulations, the SBV must manage data and even have a server that connects directly to the floors of P2P lending companies. —VNS

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