New reforms needed for full digitization

There is a fast-growing trend across the world to digitalize the entire global financial and banking systems. Digitalization is being believed to be a great driver of economic growth. 
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We see that South Korea has constantly been making immense progress in improving and updating its digital legal system with the government striving to bring more benefits for its people. In a talk with Saigon Investment, Dr. Tran Van, Director of the Vietnam Institute of Digital Economy Development (VIDE), said that only appropriate legal reforms can enable digital technology to bring about a strong socio-economic growth in Vietnam.

Laws in South Korea

For meeting all the requirements for digital transformation in the financial and banking sector, South Korea enacted laws related to Fintech and digital banking, which they termed as Internet-Only-Bank Law or Neo-Bank Law. This Internet-Only-Bank Law allows Fintech companies to hold up to 34 percent of shares in digital banks as per the Act on Special Cases Concerning Establishment and Operation of Internet-Only-Bank, that was set in 2018. Together with the Bank Act, a solid foundation for the advent of three Internet-Only-Banks, which include K Bank, Toss Bank and Kakao Bank, was laid to provide satisfactory services and support for small and micro enterprises, household businesses, and disadvantaged and low-income groups of society.

The Law was developed to provide Support for Innovation in the Financial Sector, with its core values held by regulations on the sandbox mechanism, for a trial period of two years and only renewable once every two years. The State also established the Open Application Programming Interface (Open API) data sharing mechanism in 2019 and introduced the MyData platform in 2022 on the basis of amendments to the Credit Information Law revised in 2020, Law on Handling Civil Claims revised in 2020, Law on E-Government revised in 2021, Law on Promotion of Data Industry and Data Usage revised in 2021, and Law on Data Protection or Protection of Personal Information revised in 2021.

Although it is highly advisable to initiate reforms and innovate in the field of digital finance, the relevant agencies must seriously consider and issue licenses as well as carefully carry out inspections and supervision activities for various types of digital financial services, based on  detailed criteria stipulated in the law, from minimum amounts of capital to a large proportion of shares held by legal entities and individuals participating in capital contribution. The business plan must also meet strict financial and internal control standards while qualified managers and appropriate human resources must be selected in accordance with the Act on Corporate Governance of Financial Companies. If there are foreign investors the need will be for more technology infrastructure, headquarter locations, and additional requirements for personal information.

Additionally, the law requires that companies participating in contributing capital towards Internet-Only-Banks should have a history of five years being free from violations of basic business laws such as the Law on Fair Competition, the Law on Tax Management, or other financial and business laws. The South Korean agencies conduct a check on businesses prior to acceptance.

Situation in Vietnam

It will be extremely difficult to carry out digital transformation in the financial and banking industry without the provisions of related laws because every process will be completely new. No matter how advanced the technology is, it is difficult to avoid potential risks for both the users and the service providers. The traditional credit and payment systems have been in use for hundreds of years, although there have been errors in its operations, either subjective or objective, intentional or unintentional.

Currently, the digital transformation strategy in the South Korean financial and banking sector focuses on reinforcing competitiveness of financial service platforms and expanding the network of digital service locations. Traditional banks, with Fintech labs and Fintech start-ups, are boosting competitiveness with Fintech and big tech activities by developing super apps on smartphones, like Internet-Only-Banks, with several integrated financial and non-financial features and services. They are maximizing convenience, friendliness to all customers, and providing a wide range of needs for the daily lives of the people from all walks of life.

One of the strategic breakthroughs that came through Resolution No. 52-NQ/TW, introduced by the Politburo on September 27, 2019, had a number of policies and guidelines on how to actively participate in the Industrial Revolution for the fourth time. This means improving the laws to facilitate the process of national digital transformation and the development of new products, services and economic models based on digital technology, internet, and cyberspace. It also means completing laws and policies on data and data management. For this goal, the Prime Minister has approved the National Digital Transformation Program until 2025 with a vision till 2030, to turn Vietnam into a prosperous digital country.

The National Assembly has over the years bent over backwards to make revisions and amendments to the Law on Electronic Transactions of 2005, and the Law on Anti-Money Laundering, and has plans to make improvements to the Law on Credit Institutions, the Law on Deposit Insurance, and the Law on State Bank of Vietnam. The National Assembly has also tried to make possible more improvements to pave the way for digitalization in the financial and banking sector, and promote the three pillars of national digital transformation, namely, digital government, digital economy, and digital society. This will make it possible for Vietnam to become a more modern and transparent society, reduce financial risks for communities and businesses, and enhance economic competitiveness.