The Law on Credit Institutions and The Role of Banking and Finance Lawyers
In the wake of Vietnam’s amended Law on Credit Institutions, banking and finance lawyers in Vietnam have become indispensable allies for clients navigating the complexities of compliance. The new legislation, which strictly prohibits banks from tying the sale of non-mandatory insurance products to the provision of banking products and services, marks a significant shift in the regulatory landscape. Banking and finance lawyers are pivotal in interpreting these changes, ensuring that clients not only understand the new rules but also implement strategies that align with them.
The Amended Law on Credit Institutions, which was recently passed, strictly prohibits banks from tying the sale of non-mandatory insurance products to the provision of banking products and services in any form.
Disclosure of Information on Shareholders Owning from 1% of Charter Capital or More
On the morning of January 18, with 450 delegates voting in favor (accounting for 91.28%), the National Assembly officially passed the Amended Law on Credit Institutions. Before the vote, the Standing Committee of the National Assembly (SCNA) reported to the National Assembly on several major issues that were considered, explained, and adjusted in the draft law.
Regarding certain regulations related to cross-ownership, manipulation, and influence over credit institutions, there were opinions that measures to reduce the ownership ratio of shares and limit credit issuance had not resolved the issue of cross-ownership, manipulation, and influence as in recent times, with the importance being on the supervision of enforcement.
The SCNA agreed with the opinions of the delegates, and therefore, in addition to regulating the reduction of the ownership ratio of shares and credit issuance limits, the draft law has been supplemented with provisions on the provision and public disclosure of information. In particular, shareholders owning from 1% of the charter capital of a credit institution (CI) must provide information, and the CI must publicly disclose the information of these shareholders to ensure transparency.
The SCNA requests the Government to direct the State Bank of Vietnam (SBV) to enhance coordination effectiveness with relevant ministries and sectors, and at the same time, to develop solutions to increase the effectiveness of inspection, audit, supervision, and to ensure the maximum limitation of cross-ownership, manipulation, and influence over CIs.
Regarding early intervention in credit institutions, during the discussion, there were suggestions to carefully consider the regulations requiring CIs to clearly explain the risk level provisions not yet allocated, the profits to be collected not yet allocated in financial reports, including public financial reports listed in the draft law.
Reporting on this issue, the SCNA stated that the draft law had prescribed the public disclosure of financial reports according to legal regulations, except for the case where the CI is under special control. Therefore, based on the proposal of the Government, the SCNA accepted the opinions of the delegates regarding the regulations on risk provisions not yet allocated, the profits to be collected not yet allocated as in the draft law.
The SCNA requests the Government, in the process of implementing the law, to instruct the SBV to take responsibility and develop appropriate solutions to clearly understand the financial situation of these CIs when they are subject to support mechanisms, ensuring the safety of the CI system.
Regarding the issue of ending early intervention, the SCNA agreed with the opinions of the delegates that the SBV has the responsibility to issue documents for implementation, as well as to terminate early intervention.
The SBV has the responsibility to monitor, supervise, and ensure that the CIs have remedied the conditions leading to early intervention.
Concerning special lending to people’s credit funds, there were suggestions to remove the provision of the SBV deciding on special lending by cooperative banks with an interest rate of 0%/year, without collateral for people’s credit funds in the draft law.
The SCNA agreed with the opinion of the delegates that the cooperative banks have the right to decide on special loans by cooperative banks to people’s credit funds.
Regarding the handling of bad debts and secured assets, there were suggestions to add transitional provisions for contracts with secured assets being real estate projects signed before the law takes effect.
Accepting this opinion, the draft law was revised to stipulate the transfer of the entire or a part of real estate projects as secured assets to recover debts and the transfer of the entire or a part of real estate projects that have been received as secured assets before the law takes effect to recover debts from the draft law.
Regarding the insurance agency activities of CIs, there were suggestions to study legislation to have sanctions to strictly deal with violations by CI employees, such as inadequate advice causing some customers to confuse insurance products with banking products, or the requirement to purchase insurance linked to loan requests when customers need to borrow from the bank. There were also opinions that commercial banks should not be allowed to link to sell insurance; cross-selling of life insurance should be prohibited.
Accepting the opinions of the delegates, the SCNA revised the draft law by adding provisions on prohibited acts as follows: CIs, foreign bank branches, managers, executives, and employees of CIs, foreign bank branches are strictly prohibited from tying the sale of non-mandatory insurance products to the provision of banking products and services in any form. Concurrently, the Governor of the SBV is tasked with regulating the scope of insurance agency activities of CIs to be appropriate for the nature and activities of the banking sector.
Banking and finance lawyers play a crucial role in advising clients on the full spectrum of regulatory compliance, including the recent mandate for transparent disclosure of information by shareholders owning from 1% of charter capital or more. This transparency is a move towards greater accountability within the financial sector, and banking and finance lawyers are at the forefront, providing the legal framework through which clients can navigate this new demand for openness.
With the law set to take effect from July 1, 2024, banking and finance lawyers are already helping clients prepare for the upcoming changes. They offer expert guidance on creating policies and procedures that align with the law’s requirements, such as establishing clear boundaries between banking services and insurance product offerings.
The new law’s emphasis on transparency means that banking and finance lawyers must ensure that their clients are ready to disclose relevant financial information. This includes assisting credit institutions in the clear explanation of risk provisions and profits in financial reports. Banking and finance lawyers play a vital role in revising and preparing financial documents that meet the stipulations of the amended law, safeguarding clients from non-compliance repercussions.
Additionally, banking and finance lawyers are advising clients on early intervention termination procedures. They are ensuring that the State Bank of Vietnam’s (SBV) requirements for monitoring and supervising credit institutions are understood and adhered to, helping clients correct conditions that could lead to early intervention.
Banking and finance lawyers are also at the center of consultations regarding special lending to people’s credit funds. They are instrumental in clarifying the rights and obligations under the new provisions, advising cooperative banks on their decision-making regarding special loans. Their expertise is critical in ensuring that these transactions are carried out within the legal framework, maintaining the integrity of the financial system.
When it comes to handling bad debts and secured assets, banking and finance lawyers are providing essential counsel on transitional provisions, particularly for contracts with real estate projects as secured assets. They assist in the delicate process of debt recovery, ensuring that any transfer of assets complies with the newly established laws.
As the law defines the scope of insurance agency activities for credit institutions, banking and finance lawyers are crucial in interpreting and implementing these regulations. They guide banking clients on how to lawfully conduct insurance agency activities, ensuring that these services are offered without violating the strict prohibitions on cross-selling.
Banking and finance lawyers are not just reactive to changes; they proactively work with clients to anticipate and prepare for shifts in the regulatory landscape. Their forward-thinking approach helps clients stay ahead of compliance issues, minimizing risks associated with regulatory changes.
The amended Law on Credit Institutions has underscored the need for rigorous compliance in Vietnam’s banking sector. Banking and finance lawyers have emerged as essential partners, providing the expertise necessary to navigate these changes effectively. As clients adjust to the new regulatory demands, banking and finance lawyers remain committed to delivering the legal solutions and strategic advice that ensure seamless adherence to the law and the continued success of financial operations.
We help clients overcome cultural barriers and achieve their strategic and financial outcomes, while ensuring the best interest rate protection, risk mitigation and regulatory compliance. ANT lawyers has lawyers in Ho Chi Minh city, Hanoi, and Danang, and will help customers in doing business in Vietnam.
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