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Legal issues on peer-to-peer lending business In Vietnam

Lưu ý: “bài viết này chỉ phát hành tiếng Anh cho tạp chí nước ngoài Asian- Mena Counsel”

By Ha Thi Hai.

Peer-to-peer (P2P) lending has been growing rapidly in Vietnam, along with the develop­ment of financial technology. There are a number of such enterprises using online platforms to con­nect borrowers and lenders, including Tima.vn, Vaymuon.vn, Fungo.vn and Lendbiz.

What is the principal legal framework of Vietnam for P2P lending business?

As a general principle under the Law on Investment of Vietnam, P2P lending is neither a prohibited nor a conditional business line. This is probably the most favourable legal basis for P2P lending to be conducted in Vietnam in the current context.

With no specific regulation promulgating P2P lending, it may be considered as an e-commerce trading platform, with the “buyer, seller” being the borrower and lender, and “goods, services” being lending activity. However, continuous lending for profit is deemed banking activity and is restricted to credit institutions pursuant to Vietnamese laws. On the other hand, it is prohibited by law to take advantage of the name of e-commerce business activities for illegal capital raising from other traders, organisations and individuals. This is probably the reason why almost all P2P lending businesses fail to register as an e-commerce trading platform in Vietnam.

In practice, because P2P lending companies and all other companies in Vietnam have to register their business activities, P2P lending companies in Vietnam mostly register as investment consultancy, information search services via contracts, financial consultancy supporting services, brokerage activities, etc.

In the current context, what legal issues may a P2P lending company in Vietnam be faced with?

First of all, regarding business activities that are not governed by laws and imply potential risks to the society that may not be managed by state agencies, there is a possibility that the Vietnamese state agencies will consider risk-mitigating measures or enact a regulatory framework for the purpose of management. In fact, the State Bank of Vietnam is currently developing a plan to allow a number of companies that have good financial capacity to pilot P2P lending businesses. After that, the State Bank of Vietnam may add P2P lending to the group of conditional business lines to tighten its management.

The second issue relates to loan interest. As there is no governing regulation, the lending interest rate in civil transactions through P2P lending under the Civil Code 2015 shall be agreed by the parties, but must not exceed 20 percent per year of the loan. It is noted that if the interest rate in a civil transaction is five times higher than the maximum interest rate specified in the Civil Code, earns an illegal profit of from VND30 million to under VND100 million or recommits this offence despite the fact that he/she has incurred an administrative penalty or has an unspent conviction for the same offence, it may constitute a crime of usury in civil transactions under the Criminal Code.

The third matter is responsibilities of P2P lending business to the loan. Due to the absence of legal provisions governing the P2P lending business and responsibilities of P2P lending companies, in the current context, the responsibilities of P2P lending company in case the borrower fails to pay the debt based on the civil laws and the agreements signed between the parties, as well as the rules and regulations of the P2P lending platform which are developed and published on their websites. Therefore, if the agreements, rules and regulations are not well prepared, loans are not well managed, KYC appraisal procedure is absent or not reliable enough, it shall easily lead to an increase of bad debts and complaints about the responsibilities of P2P lending companies when bad debts arise.

The fourth is the issue of payment. A number of P2P lending businesses act as payment intermediaries between borrower and lender for the purpose of controlling information of the loan and fee collection. This activity may face the risk of being considered as a payment intermediary business, which must be licensed by the State Bank of Vietnam. The provision of payment intermediary services without a licence of the State Bank of Vietnam may be subject to administrative fines and confiscation of proceeds.

Fifth, regarding anti-money laundering, organisations conducting financial activities are currently required to comply with very strict anti-money laundering regulations by the Law on Anti- Money Laundering. P2P lending activities that have not been governed by anti-money laundering regulations may lead to the risk that the P2P lending business is unable to control money laundering activities that may arise in loan transactions and potential risks from these money laundering activities.

Learning from the lesson of the explosion of uncontrolled P2P lending in China, leading to the collapse of hundreds of P2P platforms in 2018 and the recent trend of redirection of some P2P lending platforms to Vietnam, the Government will issue legal regulations in the coming time to manage, control, prevent risks and other forms of corruption from P2P lending in Vietnam. Therefore, during this time, P2P lending investors need to do research on relevant Vietnamese regulations carefully to orient their business activities and to avoid the risks of violating the laws. Investors may also consider proactively submitting their business plans to the SBV for consideration and approval to legally pilot this business activity.

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Legal issues on peer-to-peer lending business In Vietnam

By Ha Thi Hai.

Peer-to-peer (P2P) lending has been growing rapidly in Vietnam, along with the develop­ment of financial technology. There are a number of such enterprises using online platforms to con­nect borrowers and lenders, including Tima.vn, Vaymuon.vn, Fungo.vn and Lendbiz.

What is the principal legal framework of Vietnam for P2P lending business?

As a general principle under the Law on Investment of Vietnam, P2P lending is neither a prohibited nor a conditional business line. This is probably the most favourable legal basis for P2P lending to be conducted in Vietnam in the current context.

With no specific regulation promulgating P2P lending, it may be considered as an e-commerce trading platform, with the “buyer, seller” being the borrower and lender, and “goods, services” being lending activity. However, continuous lending for profit is deemed banking activity and is restricted to credit institutions pursuant to Vietnamese laws. On the other hand, it is prohibited by law to take advantage of the name of e-commerce business activities for illegal capital raising from other traders, organisations and individuals. This is probably the reason why almost all P2P lending businesses fail to register as an e-commerce trading platform in Vietnam.

In practice, because P2P lending companies and all other companies in Vietnam have to register their business activities, P2P lending companies in Vietnam mostly register as investment consultancy, information search services via contracts, financial consultancy supporting services, brokerage activities, etc.

In the current context, what legal issues may a P2P lending company in Vietnam be faced with?

First of all, regarding business activities that are not governed by laws and imply potential risks to the society that may not be managed by state agencies, there is a possibility that the Vietnamese state agencies will consider risk-mitigating measures or enact a regulatory framework for the purpose of management. In fact, the State Bank of Vietnam is currently developing a plan to allow a number of companies that have good financial capacity to pilot P2P lending businesses. After that, the State Bank of Vietnam may add P2P lending to the group of conditional business lines to tighten its management.

The second issue relates to loan interest. As there is no governing regulation, the lending interest rate in civil transactions through P2P lending under the Civil Code 2015 shall be agreed by the parties, but must not exceed 20 percent per year of the loan. It is noted that if the interest rate in a civil transaction is five times higher than the maximum interest rate specified in the Civil Code, earns an illegal profit of from VND30 million to under VND100 million or recommits this offence despite the fact that he/she has incurred an administrative penalty or has an unspent conviction for the same offence, it may constitute a crime of usury in civil transactions under the Criminal Code.

The third matter is responsibilities of P2P lending business to the loan. Due to the absence of legal provisions governing the P2P lending business and responsibilities of P2P lending companies, in the current context, the responsibilities of P2P lending company in case the borrower fails to pay the debt based on the civil laws and the agreements signed between the parties, as well as the rules and regulations of the P2P lending platform which are developed and published on their websites. Therefore, if the agreements, rules and regulations are not well prepared, loans are not well managed, KYC appraisal procedure is absent or not reliable enough, it shall easily lead to an increase of bad debts and complaints about the responsibilities of P2P lending companies when bad debts arise.

The fourth is the issue of payment. A number of P2P lending businesses act as payment intermediaries between borrower and lender for the purpose of controlling information of the loan and fee collection. This activity may face the risk of being considered as a payment intermediary business, which must be licensed by the State Bank of Vietnam. The provision of payment intermediary services without a licence of the State Bank of Vietnam may be subject to administrative fines and confiscation of proceeds.

Fifth, regarding anti-money laundering, organisations conducting financial activities are currently required to comply with very strict anti-money laundering regulations by the Law on Anti- Money Laundering. P2P lending activities that have not been governed by anti-money laundering regulations may lead to the risk that the P2P lending business is unable to control money laundering activities that may arise in loan transactions and potential risks from these money laundering activities.

Learning from the lesson of the explosion of uncontrolled P2P lending in China, leading to the collapse of hundreds of P2P platforms in 2018 and the recent trend of redirection of some P2P lending platforms to Vietnam, the Government will issue legal regulations in the coming time to manage, control, prevent risks and other forms of corruption from P2P lending in Vietnam. Therefore, during this time, P2P lending investors need to do research on relevant Vietnamese regulations carefully to orient their business activities and to avoid the risks of violating the laws. Investors may also consider proactively submitting their business plans to the SBV for consideration and approval to legally pilot this business activity.

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LEGAL UPDATE – NOVEMBER 2019 – INSURANCE BUSINESS LAWS

NEW REGULATIONS ON INSURANCE BUSINESS LAWS

By Nguyen Thu Trang

Legal Assistant

Law on Insurance Business, after nearly 20 years of implementation, has brought positive effects to the development of economy and society in Vietnam. In order to meet the commitments in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Law No. 42/2019/QH14 dated 14 June 2019 on amendment and supplement of a number of articles of Law on Insurance Business and Law on Intellectual Property (“Law No. 42”) was ratified by the National Assembly. Law No. 42 will officially take effect from 1 November 2019, in which some notable provisions on insurance business are as follows:

1. Supplement of regulations on insurance auxiliary service

This type of insurance business is newly stated by laws, in particular, insurance auxiliary service is an integral part of insurance business activities, implemented by insurance enterprise, insurance brokerage enterprise, other organizations and individuals for profit purpose. This service consists of 5 activities: insurance consultancy, insurance risk assessment, actuarial analysis, insurance loss assessment and insurance claim assistance.

According to Clause 2, Article 3 of Law No. 42, insurance auxiliary service is supplemented to List of conditional business lines specified in Annex 4 of the amended Law on Investment.

2. Supplement of regulations on provision of insurance auxiliary service

Insurance consultancy as an independent insurance auxiliary service is different from insurance products sale consultancy implemented by insurance agents and insurance brokerage enterprise under current Law on Insurance business, therefore, Law No. 42 supplements definition and provides conditions for qualifications of individual who provides insurance consultancy service in of Clause 4, Article 1 Law No. 42 (Clause 1, Article 93b). Accordingly, in addition to conditions for legal capacity, individual who provides insurance auxiliary service is required to have bachelor’s degree or higher majoring in insurance or bachelor’s degree or higher in another major and a certificate of training in insurance consultancy.

Moreover, organization providing insurance auxiliary services is required to fulfill the conditions for legal status of entity and conditions for individual providing insurance auxiliary service as stated in of Clause 4, Article 1 Law No. 42 (Clause 2, Article 93b) above.

In order to create conditions for organizations and individuals currently engaging in insurance auxiliary service to have time to fulfill the conditions for provision of that service and to ensure the sanctions, Clause 1, Article 4 of Law No. 42 states that such organizations and individuals shall have 1 year to meet the above conditions.

3. Professional liability insurance to be mandatory when providing insurance auxiliary service

Clause 4, Article 1 Law No. 42 (Clause 3, Article 93a) states that individuals providing insurance consultancy service is obliged to purchase professional liability insurance for provision of insurance consultancy service; insurance auxiliary service providers shall also purchase professional liability insurance in accordance with each type of insurance auxiliary service.

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LEGAL UPDATE – SEPTEMBER 2019

NEW REGULATIONS ON INTELLECTUAL PROPERTY LAW

On June 14th, 2019, the National Assembly enacted Law No. 42/2019/QH14 on amendment and supplement of a number of articles of Law on Insurance Business and Law on Intellectual Property (“Law No. 42”) to comply with the Intellectual Property regulations set forth in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Law No. 42 will officially take effect from November 1st, 2019 with points related to Intellectual Property noted as follows:
1. Novelty and inventive step of patent

A patent shall not lose its novelty if the patent application is submitted within 12 months in Vietnam from the date that:

i. The patent is directly or indirectly disclosed by the person who is entitled to registry or the person who has information about it.

ii. The disclosure of the patent by the State administrative agency of industrial property rights is inconsistent with the laws;

iii. The patent application is submitted by the person who is ineligible for registration.

The patent shall not be considered losing its novelty as new regulation of Law No. 42 extends the time limit for submission of patent application from 6 months to 12 months. Besides, Law No. 42 provides wider range of the applicants than the former regulations of Law on Intellectual Property.

In addition, Law No. 42 supplements the regulations that a technical solution which is a patent disclosed in the above cases shall not be used as a basis for evaluating the inventive step of such patent.

2. Validity of the Trademark Licensing Agreement (“TLA”)

The TLA between the parties is legally binding upon third parties without being registered at the National Office of Intellectual Property.

3. Obligation to use the trademarks

In the event that a dispute arises due to a request for termination of validity of Trademark Certificate of Registration of the third party as the trademark has not been used for five (05) consecutive years, the use of licensed trademark by a licensee is still considered the use of the trademark owner.

4. Self-defense right

According to Law No. 42, an organization/individual that is abused by intellectual property defense procedures (intentionally exceeding the scope or purpose of the procedure) is entitled to request the Court to compel the abusing party of compensation for damages caused by abusive procedures (including reasonable fees for hiring a lawyer).

Moreover, there are additional amendments as follows:

1. Names and indications, which are the common name of goods and widely accepted by consumers in Vietnam, are ineligible for protection as geographical indications;

2. Refusal or cancellation of geographical indications due to “potentially confusing” instead of “will cause confusion” with protected trademark in Vietnam;

3. An application for registration of industrial property rights shall be submitted in paper or electronic form according to the online filing system;

4. Supplementing provisions on International proposals and processing of International proposals for protection of geographical indications;

5. Material losses caused by intellectual property’s infringement can be determined by the intellectual property right’s holder in accordance with provisions of laws.