Forex trading under the laws of Vietnam (Part 1)
Further to our article on Cryptocurrency, today we will discuss another related topic which is increasingly popular in emerging markets, including Vietnam: Forex business/ trading.
In the first part of this Article, we will answer the question: “Is Forex trading regulated under the laws of Vietnam?”
With Forex trading, the Traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies which are likely to fluctuate in the future. On the other hand, investing in foreign exchange trading is investing in the difference between the exchange rate of a pair of one currency or the price fluctuations of other commodities. It means Forex trading is not about buying and selling foreign exchange to serve the needs of using foreign exchange but rather to speculate on price fluctuations. However, the applicable laws of Vietnam do not provide any clauses on price fluctuation speculation as a legal foreign exchange activity.
According to the Schedule of WTO Commitments, foreign exchange services have been committed to open for the foreign investors’ access to the Vietnamese market provided that the foreign investors must meet/ satisfy a number of conditions/ requirements. In particular, Section II.7.B of the Schedule of WTO Commitments provides that a foreign finance company investing in Vietnam is only permitted to establish a commercial presence in Viet Nam in the forms of representative office, joint venture finance company, 100% foreign-invested finance company, joint venture financial leasing company and 100% foreign-invested financial leasing company. Besides, Article 36 of the Ordinance on Foreign Exchange Control[1] provides that only credit institutions and other organizations that have been licensed by the State Bank of Vietnam are entitled to do business and provide the domestic and offshore foreign exchange services. Accordingly, the foreign investor wishing to engage in foreign exchange business in Vietnam must be a foreign finance company, and must set up an entity under either of the above investment forms and then obtain an approval in writing by the State Bank of Vietnam.
Nevertheless, Forex business is not included in foreign exchange services as per the laws of Vietnam. In particular, according to Article 5 of the Circular No. 21/2014/TT-NHNN amended by the Circular No. 28/2016/TT-NHNN, the foreign exchange services include only the followings:
1. Conduct foreign exchange spot transactions.
2. Conduct forex forward transactions, swap transactions and option transactions.
3. Receive deposits from, grant loans in foreign currencies to clients other than credit institutions.
4. Factoring and issuing guarantee in foreign currencies.
5. Issue international payment cards, act as an agent issuing international payment cards, pay international payment cards, and accept international payment cards.
6. Provide the wire transfer or payment services in foreign currencies within Vietnam’s territory; provide foreign currencies payment services.
7. Purchase, sell, discount and rediscount negotiable instruments and other valuable papers in foreign currencies.
8. Authorize other credit institutions, branches of foreign banks or business organizations to act as agents to provide foreign exchange services, including foreign exchange and foreign currencies payment services.
9. Provide asset management and preservation services in foreign currencies; grant loans in foreign currencies by delegation.
10. Broker issuance of valuable papers in foreign currencies.
11. Provide consultancy on foreign exchange to clients.
12. Open payment accounts in foreign currencies at other commercial banks and branches of foreign banks that are permitted to conduct foreign exchange transactions.
13. Take and grant loans in foreign currencies to other permitted credit institutions and domestic financial institutions.
14. Make deposits and receive deposits in foreign currencies to other permitted credit institutions.
15. Open current accounts for foreign credit institutions.
16. Take foreign currency deposits from foreign credit institutions.
17. Conduct interest rate derivatives and other forex-related derivatives on the domestic market.
18. Provide forex transactions other than those specified from clause 1 through clause 17 of this Article on the international market.
From our point of view, Forex business is not considered/ recognized as a foreign exchange service in accordance with the laws of Vietnam for the following reasons:
i. The Forex business is not included into the list of the foreign exchange services in accordance with Article 5 of the Circular No. 21/2014/TT-NHNN; and.
ii. The nature of doing the Forex business is not a foreign exchange trading activity as prescribed by the laws of Vietnam. It is, instead, the trading of foreign exchange through accounts, similar to the form of margin trading and the value which will be revalued continuously according to the fluctuations of exchange rates of currency pairs or other commodities. Forex trading is not considered as buying and selling foreign exchange to serve the needs of using foreign exchange in accordance with the spirit of the laws of Vietnam. The nature of this activity is buying and selling foreign exchange to speculate on exchange rate/price movements, mostly the pair of currency and the price fluctuations of gold.
For the above reasons, from our point of view, Forex business is not regulated under the laws of Vietnam and the fact is that the State Bank of Vietnam has not, so far, issued any further guidance or instruction on such kind of business in Vietnam.
In the second part, we will discuss “Legal risks for doing/ investing in Forex business in Vietnam”
[1] Article 36 of the Ordinance on Foreign Exchange Control regulating principles for business and provision of foreign exchange services as follows:
1. Credit institutions, foreign banks’ branches and other institutions are entitled to do business and provide the domestic and offshore foreign exchange services after they are approved in writing by the State bank of Vietnam.
2. The State bank of Vietnam shall provide for the scope of business and provision of domestic and offshore foreign exchange services, conditions, orders and procedures for approval for the business and provision of foreign exchange services of credit institutions, foreign banks’ branches and other institutions
In the first part of this Article, we will answer the question: “Is Forex trading regulated under the laws of Vietnam?”
With Forex trading, the Traders attempt to profit by buying and selling currencies by actively speculating on the direction currencies which are likely to fluctuate in the future. On the other hand, investing in foreign exchange trading is investing in the difference between the exchange rate of a pair of one currency or the price fluctuations of other commodities. It means Forex trading is not about buying and selling foreign exchange to serve the needs of using foreign exchange but rather to speculate on price fluctuations. However, the applicable laws of Vietnam do not provide any clauses on price fluctuation speculation as a legal foreign exchange activity.
According to the Schedule of WTO Commitments, foreign exchange services have been committed to open for the foreign investors’ access to the Vietnamese market provided that the foreign investors must meet/ satisfy a number of conditions/ requirements. In particular, Section II.7.B of the Schedule of WTO Commitments provides that a foreign finance company investing in Vietnam is only permitted to establish a commercial presence in Viet Nam in the forms of representative office, joint venture finance company, 100% foreign-invested finance company, joint venture financial leasing company and 100% foreign-invested financial leasing company. Besides, Article 36 of the Ordinance on Foreign Exchange Control[1] provides that only credit institutions and other organizations that have been licensed by the State Bank of Vietnam are entitled to do business and provide the domestic and offshore foreign exchange services. Accordingly, the foreign investor wishing to engage in foreign exchange business in Vietnam must be a foreign finance company, and must set up an entity under either of the above investment forms and then obtain an approval in writing by the State Bank of Vietnam.
Nevertheless, Forex business is not included in foreign exchange services as per the laws of Vietnam. In particular, according to Article 5 of the Circular No. 21/2014/TT-NHNN amended by the Circular No. 28/2016/TT-NHNN, the foreign exchange services include only the followings:
1. Conduct foreign exchange spot transactions.
2. Conduct forex forward transactions, swap transactions and option transactions.
3. Receive deposits from, grant loans in foreign currencies to clients other than credit institutions.
4. Factoring and issuing guarantee in foreign currencies.
5. Issue international payment cards, act as an agent issuing international payment cards, pay international payment cards, and accept international payment cards.
6. Provide the wire transfer or payment services in foreign currencies within Vietnam’s territory; provide foreign currencies payment services.
7. Purchase, sell, discount and rediscount negotiable instruments and other valuable papers in foreign currencies.
8. Authorize other credit institutions, branches of foreign banks or business organizations to act as agents to provide foreign exchange services, including foreign exchange and foreign currencies payment services.
9. Provide asset management and preservation services in foreign currencies; grant loans in foreign currencies by delegation.
10. Broker issuance of valuable papers in foreign currencies.
11. Provide consultancy on foreign exchange to clients.
12. Open payment accounts in foreign currencies at other commercial banks and branches of foreign banks that are permitted to conduct foreign exchange transactions.
13. Take and grant loans in foreign currencies to other permitted credit institutions and domestic financial institutions.
14. Make deposits and receive deposits in foreign currencies to other permitted credit institutions.
15. Open current accounts for foreign credit institutions.
16. Take foreign currency deposits from foreign credit institutions.
17. Conduct interest rate derivatives and other forex-related derivatives on the domestic market.
18. Provide forex transactions other than those specified from clause 1 through clause 17 of this Article on the international market.
From our point of view, Forex business is not considered/ recognized as a foreign exchange service in accordance with the laws of Vietnam for the following reasons:
i. The Forex business is not included into the list of the foreign exchange services in accordance with Article 5 of the Circular No. 21/2014/TT-NHNN; and.
ii. The nature of doing the Forex business is not a foreign exchange trading activity as prescribed by the laws of Vietnam. It is, instead, the trading of foreign exchange through accounts, similar to the form of margin trading and the value which will be revalued continuously according to the fluctuations of exchange rates of currency pairs or other commodities. Forex trading is not considered as buying and selling foreign exchange to serve the needs of using foreign exchange in accordance with the spirit of the laws of Vietnam. The nature of this activity is buying and selling foreign exchange to speculate on exchange rate/price movements, mostly the pair of currency and the price fluctuations of gold.
For the above reasons, from our point of view, Forex business is not regulated under the laws of Vietnam and the fact is that the State Bank of Vietnam has not, so far, issued any further guidance or instruction on such kind of business in Vietnam.
In the second part, we will discuss “Legal risks for doing/ investing in Forex business in Vietnam”
[1] Article 36 of the Ordinance on Foreign Exchange Control regulating principles for business and provision of foreign exchange services as follows:
1. Credit institutions, foreign banks’ branches and other institutions are entitled to do business and provide the domestic and offshore foreign exchange services after they are approved in writing by the State bank of Vietnam.
2. The State bank of Vietnam shall provide for the scope of business and provision of domestic and offshore foreign exchange services, conditions, orders and procedures for approval for the business and provision of foreign exchange services of credit institutions, foreign banks’ branches and other institutions
Comments
Post a Comment