Issues raised in the development of the law on deposit insurance( Amended)

The amendment of the Law on Deposit Insurance aims to address difficulties and obstacles in deposit insurance activities in the past, ensuring consistency and unity with relevant laws, creating a complete and clear legal corridor for deposit insurer to improve their financial capacity and participate more deeply in the process of restructuring credit institutions according to the orientation of the Deposit Insurance Development Strategy to 2025, with a vision to 2030.

Plan No. 81/KH-UBTVQH, dated November 5, 2021, of the National Assembly Standing Committee on implementing Conclusion No. 19-KL/TW of the Politburo and the Project on the orientation of the Law-making Program for the 15th National Assembly tenure sets out the task of organizing research and review to propose amendments, supplements or research and develop new legal documents, ordinances, and resolutions, including the task of "Researching and reviewing the Law on Deposit Insurance."

On December 30, 2022, the Prime Minister issued Decision No. 1660/QD-TTg, approving the Deposit Insurance Development Strategy to 2025, with a vision to 2030. Accordingly, one of the main tasks and solutions to perfect the legal basis is to amend and supplement the Law on Deposit Insurance and the system of documents guiding the implementation of the Law on Deposit Insurance. The Law on Credit Institutions 2024 was passed on January 18, 2024, effective from July 1, 2024, with new regulations on the tasks of the Deposit Insurance of Vietnam (DIV) when participating in the process of early intervention and special control of credit institutions. Therefore, researching, reviewing, and proposing amendments and supplements to the Law on Deposit Insurance is one of the top priority tasks to ensure consistency and, at the same time, have a basis for implementing the Law on Credit Institutions 2024.

In addition, the implementation of the Law on Deposit Insurance has encountered a number of difficulties and problems that need to be resolved and reviewed, amended, and supplemented so that the deposit insurance policy can be more effective in practice, best protecting the legitimate rights and interests of depositors, contributing to maintaining the stability of the credit institution system, ensuring the safe and healthy development of banking activities.

In the above context, perfecting the legal framework for the operation of deposit insurance organizations, focusing on amending and supplementing the Law on Deposit Insurance, is necessary.

To implement the proposal and development of the Law on Deposit Insurance (amended), the State Bank of Vietnam (SBV) has established an internal drafting committee and a working group to assist in the development of the Law on Deposit Insurance (amended), in which the personnel of the SBV are members of the internal drafting committee and the working group; at the same time, it conducts a summary of the implementation of the Law on Deposit Insurance and assesses the impact on policies in the proposal to develop the Law.

The SBV Party Committee issued a Resolution on the policy to develop the Law on Deposit Insurance (amended); accordingly, the SBV Party Committee agreed to develop the Law on Deposit Insurance (amended) and register it in the Law and Ordinance Development Program of the National Assembly in 2025 - 2026; proposes to develop the Law on Deposit Insurance (amended) according to 05 policies proposed by the Legal Department in Report No. 1718/BC-PC dated September 27, 2024; research, refer to international experience and practice to plan regulations to flexibly and quickly respond to and resolve incidents and crises in the operations of credit institutions and ensure the stability and safety of the credit institution system.

Up to now, there are 05 policies in the proposal to develop the Law on Deposit Insurance according to the Official Dispatch of the State Bank, including (i) Policy 1: Completing regulations on deposit insurance premium; (ii) Policy 2: Completing financial mechanisms to improve efficiency and financial capacity for deposit insurance organizations; (iii) Policy 3: Completing regulations on rights and obligations of deposit insurer; (iv) Policy 4: Completing legal regulations for DIV  to participate more deeply in the restructuring process of weak credit institutions in Vietnam; (v) Policy 5: Completing regulations on insurance payments.

Based on the plan of the SBV, the DIV has always actively coordinated with units under the SBV to research and propose policies to amend and supplement the Law on Deposit Insurance. The DIV has many times officially sent official dispatches summarizing the implementation and proposing amendments and supplements to the Law on Deposit Insurance. Recently, the DIV has participated in giving opinions on the draft dossier proposing the development of the Law on Deposit Insurance (amended). Issues raised in the development of the Law on Deposit Insurance (amended) are as follows:

Firstly, the development of the Law on Deposit Insurance (amended) needs to be consistent with the Law on Credit Institutions, and at the same time, specific provisions need to be added to the Law on Deposit Insurance to have a basis for implementing the tasks of the deposit insurer in the Law on Credit Institutions

* Regarding the tasks and powers of the deposit insurer

In addition to the tasks and powers prescribed in the Law on Deposit Insurance, such as calculating and collecting deposit insurance premiums, paying deposit insurance, issuing and revoking deposit insurance participation certificates, etc., the deposit insurer's tasks in participating in the special control process of the insured institution have now been specified in the Law on Credit Institutions 2024 and documents guiding the Law.

The Law on Credit Institutions 2024 has provisions related to the tasks of the deposit insurer, such as Participating in assessing the feasibility of recovery plans, plans for merger, consolidation, and transfer of all capital contributions of people's credit funds (PCFs); special loans to commercial banks, cooperative banks, PCFs, and microfinance institutions in accordance with the Law on deposit insurance; purchase of long-term bonds of credit institutions that receive a compulsory transfer of commercial banks according to the decision of the SBV

; participate in developing bankruptcy plans for credit institutions that are subject to special supervision; coordinate with credit institutions to pay deposit insurance to depositors according to the bankruptcy plan approved by competent authorities...

The above tasks need to be supplemented in the Law on Deposit Insurance to ensure full consistency in the rights and obligations of deposit insurance organizations.

* On the time of arising of the obligation insurance payment

The Law on Deposit Insurance stipulates that the obligation to pay insurance arises from the time the SBV issues a document terminating the special control progress or a document terminating the application or not applying the measures to restore solvency. At the same time, the credit institution is an insured institution. Still, it falls into bankruptcy, or the SBV issues a document determining that the foreign bank branch is an insured institution and is unable to pay deposits to depositors (Article 22).

The Law on Credit Institutions 2024 stipulates that the deposit insurer shall coordinate with the credit institution to reimburse insurance payments to depositors according to the bankruptcy plan approved by the competent authority (Clause 1, Article 190).

Based on the above facts, it is necessary to amend and supplement the Law on Deposit Insurance regarding the time of the obligation to pay insurance premiums to ensure consistency and consistency with the provisions of the Law on Credit Institutions 2024.

* Regarding the deposit insurance coverage limit

According to the provisions of the Law on Credit Institutions 2024, the SBV shall submit to the Prime Minister for a decision on the deposit insurance coverage limit for depositors, up to the amount of deposits of individuals insured at the credit institution.

Thus, in the event that a credit institution with a major impact on the credit institution system goes bankrupt or in other special cases that may cause social disorder and insecurity, it is necessary to pay all insured deposits of depositors to stabilize depositors' psychology and avoid spreading reactions in the credit institution system.

Therefore, it is necessary to supplement the Law on Deposit Insurance with a provision that in special cases, the Prime Minister shall decide to reimburse all insured deposits of depositors at the insured institution when the obligation to pay insurance premiums arises at the request of the SBV.

* Regarding special loans

The Law on Credit Institutions 2024 stipulates that commercial banks, cooperative banks, People's Credit Funds, and microfinance institutions are allowed to borrow, especially from deposit insurance organizations, in accordance with the provisions of the Law on Deposit Insurance.

The Law on Credit Institutions 2024 does not specifically stipulate the source of funds, procedures, lending procedures, and risk handling for irrecoverable loans, etc. Therefore, it is necessary to supplement the provisions of the Law on Deposit Insurance on specific contents related to special loans so that deposit insurance organizations have a basis to carry out their tasks.

Second, the development of the Law on Deposit Insurance (amended) needs to resolve difficulties and problems in implementing it.

In the process of implementing the Law on Deposit Insurance, a number of difficulties and problems arise that need to be resolved, such as:

* Regarding deposit insurance premium

The Law on Deposit Insurance stipulates that the Prime Minister shall prescribe the deposit insurance premium framework upon the SBV's proposal; based on the deposit insurance premium framework, the SBV shall prescribe specific deposit insurance premium levels for insured institutions based on the results of the assessment and classification of these organizations (Article 20).

However, to date, differentiated fees according to the provisions of the Law on Deposit Insurance have not been implemented in practice.

Therefore, it is necessary to study, amend, and supplement the regulations on deposit insurance premiums clearly, in accordance with the characteristics of the credit institution system in Vietnam.

* Regarding the deferral of deposit insurance premiums

The current Deposit Insurance Law does not stipulate the deferral of deposit insurance premiums in special cases. However, there are situations where insured institutions have financial difficulties, leading to their inability to pay deposit insurance premiums before being placed in special control. At that time, these organizations will have to bear the burden of reimbursed deposit insurance premiums and pay fines for each day of late payment.

Therefore, it is necessary to supplement regulations on the deferral of deposit insurance premiums in special cases.

* Regarding the financial mechanism

According to the Law on Deposit Insurance, the DIV

 is allowed to use temporarily idle capital to buy government bonds, State Bank bills, and deposit money at the State Bank. The interest earned from this activity is recorded in two parts: (i) one part is included in revenue to offset annual operating costs; (ii) the remaining part is put into the Operational Reserve Fund (operating capital of the Vietnam Deposit Insurance). On the other hand, the Law on Deposit Insurance stipulates that the DIV collects its revenue to cover expenses. This provision is not consistent in the principle of using revenue to cover expenses between the Law on Deposit Insurance and accounting standards. It is not consistent with the Law on Accounting in the principle of recording revenue and expenses when preparing financial statements.

In addition, the Law on Deposit Insurance was issued in 2012. However, the process of building the Laws in recent times shows a trend of adding regulations on the financial regime of organizations with specific activities to the Law regulating the organization and operation of these organizations to ensure publicity and transparency.

Therefore, it is necessary to study and consider amending and supplementing regulations on the financial regime of the DIV at the Law on Deposit Insurance to ensure consistency with the Law on Accounting and Accounting Standards and similarity with other Laws, such as the Law on Credit Institutions.

* Regarding investment activities

According to the provisions of the Law on Deposit Insurance, the DIV's investment portfolio has significantly narrowed compared to the period before the Law; only temporarily idle capital can be used to buy government bonds, SBV bills, and deposit money at the SBV (in which only the form of buying government bonds can still generate revenue).

According to the provisions of the Law on Credit Institutions in 2024, the DIV is assigned a number of new tasks to participate in the restructuring process of weak credit institutions.

Therefore, it is necessary to study, amend, and supplement the Law on Deposit Insurance to improve and enhance the deposit insurer's financial capacity by expanding and diversifying its investment forms (in addition to those prescribed in the Law on Deposit Insurance).

Third, the development of the Law on Deposit Insurance (amended) needs to refer to international experience and practices.

Referring to international experience and practices in developing the Law on Deposit Insurance (amended) is necessary, especially related to the proposed contents, to have appropriate and objective regulations and, at the same time, help the development of the Law have more useful information sources about experiences in developing and implementing related policies.

The time to develop the Law is very urgent. Therefore, the DIV needs to proactively review the contents related to deposit insurance deposit insurer in the Law on Credit Institutions 2024, as well as the difficulties and obstacles in the implementation of the Deposit Insurance Law to be ready to give opinions during the process of participating in the development of the Law according to the plan of the SBV to perfect the mechanism to protect the rights best and legitimate interests of depositors, improve the effectiveness of the deposit insurance policy, contribute to maintaining the stability of the credit institution system, and ensure the safe and healthy development of banking activities.

Communication Department (Translation)