Circular No. 03/2008/TT-NHNN guiding the provision of foreign exchange services by Credit Institutions

CIRCULAR

Guidelines on the provision of foreign exchange services by Credit Institutions

On December 28, 2006, the Government issued Decree No. 160/2006/NĐ-CP detailing the implementation of the Foreign Exchange Ordinance (Decree No. 160/2006/NĐ-CP). Based on Chapter VI of Decree No. 160/2006/NĐ-CP, the State Bank of Vietnam (the State Bank) provides specific guidelines as follows:

PART I

SCOPE OF FOREIGN EXCHANGE SERVICE PROVISION

Section 1

FOREIGN EXCHANGE SERVICE PROVISION BY BANKS

1. After being confirmed by the State Bank to meet the conditions, banks may provide foreign exchange services in the domestic market for customers within the following scope:

a) Providing foreign exchange transactions in the form of spot, forward, swap, option contracts, futures contracts, and other foreign exchange transactions according to international practice;

b) Raising funds, lending, and guaranteeing in foreign currencies under forms prescribed by the State Bank;

c) Issuing and acting as agents for issuing international cards;

d) Providing money transfer and payment services (domestic and international), receiving and paying foreign currencies;

đ) Discounting and rediscounting negotiable instruments in foreign currencies;

e) Entrusting other credit institutions and economic organizations to act as agents for providing certain foreign exchange services, including currency exchange services, payment and receipt of foreign currencies, and other services;

g) Providing trust and asset management services in foreign currencies;

h) Providing investment banking services in foreign currencies (buying, selling, merging, guaranteeing, and acting as agents for issuing securities in foreign currencies...);

i) Providing advisory services to customers regarding foreign exchange;

k) Performing other foreign exchange activities according to international practice and in compliance with Vietnamese law.

2. After being confirmed by the State Bank to have registered, banks may provide foreign exchange services in the international market for customers within the following scope:

a) Providing international payment services;

b) Executing foreign exchange and gold buying and selling transactions on overseas markets;

c) Participating in foreign money markets and foreign derivatives markets;

d) Providing financial asset management services for customers abroad;

đ) Providing investment banking services (financial consulting, buying, selling, merging, guaranteeing, co-financing...) in the international market.

Section 2

FOREIGN EXCHANGE SERVICE PROVISION

BY NON-BANK CREDIT INSTITUTIONS

3. After being confirmed by the State Bank to have registered their operations, finance companies may provide some or all of the following foreign exchange services in the domestic and international markets:

3.1. Provision of foreign exchange services in the domestic market:

a) Providing foreign exchange transactions in the form of spot, forward, swap, option, and other foreign exchange transactions consistent with international practice;

b) Accepting time deposits of one year or longer in foreign currencies; issuing bonds and negotiable instruments in foreign currencies; borrowing foreign currency from domestic and foreign credit institutions;

c) Short-term, medium-term, and long-term lending in foreign currencies; discounting and rediscounting negotiable instruments in foreign currencies; guaranteeing foreign currency credits;

d) Providing trust and asset management services in foreign currencies;

đ) Receiving and paying foreign currencies; entrusting economic organizations to act as agents for currency exchange and payment of foreign currencies;

e) Providing advisory services to customers regarding foreign exchange.

3.2. Provision of foreign exchange services in the international market:

a) Executing foreign exchange and gold buying and selling transactions on overseas markets;

b) Participating in foreign money markets and foreign derivatives markets;

c) Providing financial asset management services for customers abroad.

4. After being confirmed by the State Bank to have registered their operations, leasing companies may provide some or all of the following foreign exchange services in the domestic market:

a) Accepting time deposits of one year or longer in foreign currencies; issuing bonds and negotiable instruments in foreign currencies; borrowing foreign currency from domestic and foreign credit institutions;

b) Leasing in foreign currencies;

c) Guaranteeing foreign currency credits;

d) Executing trust and asset management services in foreign currencies;

đ) Providing advisory services to customers regarding foreign exchange.

5. The provision of foreign exchange services by other non-bank credit institutions shall be carried out in accordance with separate regulations of the State Bank.

Chapter II

CONDITIONS FOR PROVIDING FOREIGN EXCHANGE SERVICES

Section 1

CONDITIONS FOR BANKS TO PROVIDE FOREIGN EXCHANGE SERVICES

6. Conditions for banks to be considered and confirmed by the State Bank of Vietnam as meeting the requirements to provide foreign exchange services in the domestic market:

a) Having a business plan for providing foreign exchange services in the domestic market approved by the Shareholders' Meeting (in cases where permission to establish is being sought) or the Board of Directors, clearly defining the content, methods of operation, and measures to control and prevent risks in providing foreign exchange services;

b) Possessing equipment and material conditions that meet the requirements for implementing domestic foreign exchange services;

c) Having sufficient staff knowledgeable about foreign exchange activities, trained in foreign exchange operations and risk management.

7. Conditions for banks to be considered and confirmed by the State Bank of Vietnam to register for providing foreign exchange services in the international market:

a) Having a business plan for providing foreign exchange services in the international market approved by the Shareholders' Meeting (in cases where permission to establish is being sought) or the Board of Directors, clearly defining the content, methods of operation, and measures to control and prevent risks in providing foreign exchange services;

b) Possessing equipment and material conditions that meet the requirements for providing international foreign exchange services;

c) Having sufficient staff with the ability and knowledge of international foreign exchange service operations;

d) Having an internal audit system established and functioning according to the regulations of the State Bank of Vietnam;

d) Adhering to the regulations of the State Bank of Vietnam on safety ratios in operations and in loan classification, provision for credit risk, and usage; not violating current foreign exchange management regulations during the year up to the time of requesting the State Bank of Vietnam to consider meeting the conditions;

c) Operating profitably in the year immediately preceding the year of registering to provide foreign exchange services in the international market.

Section 2

CONDITIONS FOR PROVIDING FOREIGN EXCHANGE SERVICES

FOR NON-BANK FINANCIAL INSTITUTIONS

8. Conditions for non-bank financial institutions to be considered and confirmed by the State Bank of Vietnam to register for providing foreign exchange services in the domestic market:

a) Meeting the conditions stipulated in points a, b, and c of Clause 6 of this Circular;

b) Operating profitably in the year immediately preceding the year of registering to provide foreign exchange services in the domestic market.

9. Conditions for finance companies to be considered and confirmed by the State Bank of Vietnam to register for providing foreign exchange services in the international market:

a) Meeting the conditions stipulated in points a, b, c, d, and đ of Clause 7 of this Circular;

b) Operating profitably in the three most recent years.

Chapter III

DOCUMENTATION AND PROCEDURES FOR CONFIRMATION OF MEETING CONDITIONS AND REGISTRATION FOR PROVIDING FOREIGN EXCHANGE SERVICES

Section 1

APPLICATION DOCUMENTS FOR CONFIRMATION OF MEETING CONDITIONS AND REGISTRATION FOR PROVIDING FOREIGN EXCHANGE SERVICES FOR BANKS

10. The application documents for confirmation of meeting the conditions to provide foreign exchange services in the domestic market include:

a) An application form for confirmation of meeting the conditions to provide foreign exchange services (according to Form 1 in the Appendix);

b) A business plan for providing foreign exchange services in the domestic market, clearly defining the content, methods of operation, and measures to control and prevent risks in providing foreign exchange services, approved by the Shareholders' Meeting (in cases where permission to establish is being sought) or the Board of Directors; Minutes and Resolutions of the Board of Directors' and Shareholders' Meetings approving the business plan for providing foreign exchange services;

c) A summary document on the equipment and material conditions for providing foreign exchange services and supporting documents proving compliance with the equipment and material conditions. In cases where there are no supporting documents for equipment and material conditions, a commitment from the Chairman of the Board of Directors (or authorized representative) must be provided confirming compliance with the equipment and material conditions;

d) Certificates, diplomas, and information on the qualifications, capabilities, and capacity of the personnel responsible for managing and executing foreign exchange service operations.

11. The registration documents for providing foreign exchange services in the international market include:

a) A registration form for providing foreign exchange services (according to Form 1 in the Appendix);

b) Documents specified in points b, c, and d of Clause 10 of this Circular, corresponding to the content of international foreign exchange services (excluding documents for newly established banks);

c) An audited annual financial report for the year immediately preceding the year of registering to provide foreign exchange services, audited by an independent auditing organization;

d) A report on the situation of providing domestic foreign exchange services, affirming compliance with foreign exchange management regulations.

Section 2

APPLICATION DOCUMENTS FOR REGISTRATION FOR PROVIDING FOREIGN EXCHANGE SERVICES FOR NON-BANK FINANCIAL INSTITUTIONS

12. The registration documents for providing foreign exchange services in the domestic market include:

a) A registration form for providing foreign exchange services (according to Form 1 in the Appendix);

b) Documents specified in points b, c, and d of Clause 10 of this Circular;

c) An audited annual financial report for the year immediately preceding the year of registering to provide foreign exchange services, audited by an independent auditing organization.

13. The registration documents for finance companies providing foreign exchange services in the international market include:

a) A registration form for providing foreign exchange services (according to Form 1 in the Appendix);

b) Documents specified in points b, c, and d of Clause 11 of this Circular;

c) Audited financial reports for the three most recent years preceding the year of registering to provide foreign exchange services, audited by an independent auditing organization.

Section 3

PROCEDURES FOR CONFIRMATION OF MEETING CONDITIONS AND REGISTRATION

FOR PROVIDING FOREIGN EXCHANGE SERVICES

14. Credit institutions that wish to provide foreign exchange services on the domestic market and international market must submit their application to the State Bank of Vietnam (Department of Commercial Banks and Non-Bank Financial Institutions) to obtain a Certificate of Eligibility and a Registration Certificate for Providing Foreign Exchange Services. All documents in the application file must be original copies or certified true copies from the original or certified copies by authorized representatives of the credit institution who undertake responsibility for the documents. In case the documents are in a foreign language, they must have a certified Vietnamese translation according to the law.

15. Within thirty working days from the date of receipt of the complete application file of the credit institution, the State Bank of Vietnam shall issue a Certificate of Eligibility and a Registration Certificate for Providing Foreign Exchange Services (as prescribed in Appendix 2) or refuse to issue such certificates. In case of refusal, the State Bank of Vietnam shall issue a document stating the reasons.

16. Credit institutions may request issuance of a Certificate of Eligibility or a Registration Certificate for Providing Foreign Exchange Services for part or all of the foreign exchange services. When there is a need to supplement or amend the contents of providing foreign exchange services, the credit institution must request supplementation or amendment of the Certificate of Eligibility or the Registration Certificate for Providing Foreign Exchange Services.

The registration of activities to provide foreign exchange services on the international market cannot be carried out before the registration of activities to provide foreign exchange services on the domestic market.

17. Activities of trading gold on the international market shall be conducted in accordance with the regulations of the State Bank of Vietnam.

18. Joint venture banks, wholly foreign-owned banks, joint venture non-bank financial institutions, and wholly foreign-owned non-bank financial institutions are allowed to provide foreign exchange services in accordance with the provisions of their establishment and operation licenses. Branches of foreign banks are allowed to provide foreign exchange services in accordance with the provisions of their branch establishment licenses.

Chapter IV

RESPONSIBILITIES OF CREDIT INSTITUTIONS WHEN PROVIDING FOREIGN EXCHANGE SERVICES

WHEN ENGAGING IN FOREIGN EXCHANGE SERVICE PROVIDING ACTIVITIES

19. After obtaining a Certificate of Eligibility and a Registration Certificate for Providing Foreign Exchange Services, credit institutions must maintain the conditions to provide foreign exchange services. If, after obtaining these certificates, credit institutions fail to continue maintaining the conditions stipulated in this Circular, they must suspend the permitted foreign exchange service operations and report to the State Bank of Vietnam within thirty working days from the date when they no longer meet the conditions.

20. When providing foreign exchange services, credit institutions must comply strictly with the contents recorded in the Certificate of Eligibility and the Registration Certificate for Providing Foreign Exchange Services, the provisions in Section 3 of Chapter VI of Decree No. 160/2006/NĐ-CP, the provisions in this Circular, and other relevant legal regulations.

21. Credit institutions permitted to provide foreign exchange services must comply with the regulations on foreign exchange status and other safety guarantees in business operations as prescribed by the State Bank of Vietnam.

22. Before providing foreign exchange services, credit institutions must establish transaction procedures, risk management measures, and strict internal controls. Transaction procedures must clearly state the content and steps of transactions, assign specific responsibilities and authorities to each level in executing transactions; set specific limits for transaction amounts and loss limits (if any) to ensure dual control in the transaction process. Management and supervisory staff must not directly execute transactions. Transactions must be controlled in accordance with current regulations on internal audit and control.

23. Credit institutions must detail the services that can generate risks for customers.

24. Credit institutions permitted to provide foreign exchange services must post buying and selling rates of foreign currencies and conduct foreign currency transactions in accordance with the regulations of the State Bank of Vietnam.

25. When conducting foreign exchange transactions for customers, credit institutions permitted to provide foreign exchange services must examine, verify, and retain appropriate documents and vouchers corresponding to actual transactions to ensure that foreign exchange services are provided for legitimate purposes and in compliance with the law.

26. Credit institutions are responsible for guiding operations and periodically inspecting the activities of agents they have appointed to ensure compliance with the provisions of this Circular and related laws.

27. Credit institutions are responsible for reporting on their foreign exchange service provision activities in accordance with the statistical reporting system of the State Bank of Vietnam.

28. Credit institutions must establish regulations on internal delegation of authority to ensure safety in foreign exchange service provision activities.

Chapter V

SUSPENSION AND REVOCATION OF THE CERTIFICATE OF ELIGIBILITY, REGISTRATION CERTIFICATE

REGISTRATION CONFIRMATION LETTER

FOR PROVIDING FOREIGN EXCHANGE SERVICES

29. The State Bank of Vietnam will suspend, revoke, or cancel certain contents in the Certificate of Eligibility and the Registration Certificate for Providing Foreign Exchange Services of banks and non-bank financial institutions in the following cases:

a) Being placed under special supervision by the State Bank of Vietnam;

b) There is evidence that the application for certification contains intentionally false information;

c) The establishment and operation license has been revoked or expired;

d) Splitting, merging, consolidating, or bankruptcy;

đ) Voluntarily ceasing foreign exchange service provision activities;

e) Changing functions or business sectors;

g) Amending part or all of the registered contents without notifying the State Bank of Vietnam;

h) No longer meeting the conditions for providing foreign exchange services regarding equipment, material conditions, and staff as stipulated.

Chapter VI

IMPLEMENTATION

30. This Circular shall take effect fifteen days from the date of publication in the Official Gazette and shall replace the provisions in Part Five of Circular No. 01/1999/TT-NHNN7 dated April 16, 1999, guiding the implementation of Decree No. 63/1998/NĐ-CP dated August 17, 1998 of the Government on foreign exchange management.

31. Credit institutions that have been granted Foreign Exchange Business Licenses before the effective date of this Circular must request the State Bank to convert their Foreign Exchange Business Licenses into Certificates of Eligibility and Registration Certificates for Providing Foreign Exchange Services. The deadline for credit institutions to complete the conversion is twelve months from the effective date of this Circular.

32. Periodically or at random, the State Bank Inspectorate and the State Bank Branches in provinces and centrally governed cities will inspect compliance with the conditions and adherence to the regulations set forth in this Circular.

33. The Director of the State Bank Office, Heads of relevant units under the State Bank, Directors of State Bank Branches in provinces and centrally governed cities, Chairmen of Management Boards, and General Managers (Directors) of credit institutions are responsible for implementing this Circular.