The Central Institute for Economic Management (CIEM) recently hosted a seminar on “Reality and prospects of financial supervisory system” in Hanoi. According to experts, the global financial system tends to expand and develop unpredictably. This requires each region and each country to build a smart, capable financial monitoring system. On the sidelines of the seminar, Vietnam Business Forum interviewed Dr Can Van Luc on the issue. Anh Phuong reports.
Could you talk about the reality of financial monitoring systems of competent authorities in Vietnam now?
Vietnam now has five financial monitoring bodies, namely the inspection and supervision agency under the State Bank of Vietnam (SBV); the State Securities Commission of Vietnam (SSC); the Insurance Department; the Deposit Insurance of Vietnam (DIV), and the National Financial Supervisory Commission (NFSC) under the Government. However, according to many experts, although Vietnam has quite enough decentralised agencies responsible for monitoring, their functions overlap. But in reality, the operations of these agencies reveal bad coordination and limitations arising from unfocused performance model, inadequate monitoring mechanism, and paperwork administration. In addition, the coordination of monitoring agencies is mainly based on specific cases.
This argument can be demonstrated very clearly with the organisational structure of the State Bank of Vietnam. Currently, this agency’s operations are overlapping and inconsistent from central to local levels. Its monitoring capacity and banking administration fail to keep up with the pace of market development. On the stock market, inspection and examination activities are not frequent and continuous, while the low penalties are not enough to deter [violators]. In the insurance sector, there are no safety norms for measuring risks and no clear compensation coverage mechanism.
So, do you think supervisory agencies in Vietnam are under-performing?
In my opinion, in the current context of wide-opening world economy, this idea is right to a certain extent because the world financial system tends to diversify in operating forms and modes. Meanwhile, in Vietnam, sector-based inspection and supervisory model is exposing difficulties and limitations. Vietnam now has six financial – insurance groups with major business lines being insurance, securities and banking. Our monitoring system is based on sectors. For example, the State Bank is responsible for managing banking operations and the Ministry of Finance is in charge of managing financial and insurance operations. This sector-based “distribution” entails limitations in risk control of financial groups. Meanwhile, we do not have a lead agency capable of performing specialised operations. For years, it was naturally understood that this task belongs to the National Financial Supervisory Commission (NFSC) but this agency does not have the function of monitoring individual financial institutions, but only advising the Government on overall financial market monitoring.
Do you think Vietnam needs to establish an integrated financial supervisory agency?
Opinions are divided on the empowerment and formation of a united national financial supervisory agency to the NFSC. According to Decision 79/2009/QD, dated May 18, 2009 on the organisation and operation of the NFSC, this agency is responsible for monitoring the overall financial market, monitoring integrated operations of financial groups, monitoring the establishment and condition of financial and credit institutions operating in banking, securities and insurance industries, and coordinating specialised supervision. However, the agency mainly provides “advice” as it has no right to issue legal documents.
Another restraint to the formation of an integrated financial watchdog is relatively lax regulations on financial business in Vietnam. If we maintain a system of lax financial supervision rules, this may even lead to the collapse of the national financial system. The vivid lesson of lax financial policy can be seen in the credit policy for real estate market which results in asset bubbles (finance and real estate) and the rapid expansion of banking networks. In addition, regulatory credit activities are not tight enough and easily abused. Vietnam lacks effective, timely measures to prevent concentrated lending risks and is too weak to identify new emerging risks. Particularly, many shadow banking activities exist, like securities repo, margin trading with securities companies, business cooperation contracts, recourse debt trading, short sales on unlisted securities market, credit default swaps, trust investment, advance and deposit for securities and bond purchase brokerage.
Before this reality, the formation of an integrated financial watchdog is fully feasible. This agency will help supervise cash flows among financial markets, which include monetary and financial markets, capital market and insurance market, in order to detect, regulate, and handle cross risks and cross-ownerships. However, we should also consider the formation of an integrated financial supervision agency for long-term purpose and we will have to undergo transitional steps in operating apparatus and personnel. Therefore, the most urgent work to increase the capacity of the financial – banking sector of Vietnam is to strengthen cooperation among financial supervisory authorities to perform a common task.
Dr Nguyen Dai Lai
In the current context, Vietnam should soon restructure the organisation pattern of the NFSC by increasing its legal position and power for this agency, instead of having it perform its tasks without any power as now. Specifically, the agency should be empowered with national-level authority to perform State supervision over operations of credit institutions, to issue regulatory decisions and circulars on safety standards and inspection principles to ensure the strictness and consistency towards international practices and national standards concerning safety limits for different types of financial institutions with conditional operations in financial markets.
Dr Nguyen Son, Head of Market Development Department, State Securities Commission of Vietnam
The construction of supervisory criteria must be based on international supervisory criteria like Basel 2, Basel 3 and CAMEL. It is important to build supervisory mechanisms in line with international accounting and auditing standards, as well as trans-border banking, securities, insurance supervisory mechanisms. The International Organisation of Securities Commissions (IOSCO) standards should be applied to management and supervision of the stock market.
Dr Nguyen Tu Anh, Central Institute for Economic Management
When multi-business companies are present (i.e. financial groups with securities investment, insurance and credit business,) supervision of them is separated. Without good coordination among supervisory agencies, they can more easily conceal their problems, thus threatening the system safety. When watchdogs examine securities business, they cannot cover banking business. When they perform inspection in banking business, they cannot do insurance and securities business. If authorities are allowed to perform partial inspection, they will have difficulty identifying problems of inspected entities, while examination information is not likely shared by the State Securities Commission, the State Bank of Vietnam and the Ministry of Finance. According to experts, a lot of business fields are not controlled and supervised now.
Đăng ký: VietNam News
