Investment Bank And The Legal Framework
By Nguyen Cao Quy
A complete legal framework for investment banks is still nowhere to be found in Vietnam
In Vietnam, investment banks have sprouted up in several ways.
In 2007, when the banking sector was blessed with enticing profit and sizzling growth, domestic banks established multi-sector financial conglomerates and upgraded securities firms into investment banks.
Moreover, experts in finance and investment banking have joined forces to set up relatively big investment banks such as Vietnam Capital Partners (VCP). These investment banks resemble their counterparts in other countries but have yet to proliferate and leave a significant mark in Vietnam.
Finally, it is important to consider international investment banks such as Credit Suisse, Goldman Sachs, Barclays Capital, Nomura Securities and Daiwa Securities although their offices are actually located in financial hubs in neighboring countries, including Singapore and Hong Kong.
Some securities firms are boosting their investment banking arm to develop into financial groups that specialize in this activity.
Under prevailing laws, banks operate in accordance with the Credit Institution Law and are supervised by the State Bank of Vietnam (SBV). Securities firms, meanwhile, have to comply with the Securities Law 2006 and Enterprise Law 2005, under the supervision of the State Securities Commission (SSC).
The new Credit Institution Law (No. 47/2010/QH12 in effect since January 1, 2011) does not clearly touch on differences between commercial banks and investment banks. Instead of spelling out investment banking activities that commercial banks can engage in directly, via securities firms or through investment banks, this law has chosen to do away with the concept of investment banking. Meanwhile, the laws in 2004 and 1997 considered this a form of banking. Does it mean investment banks do not have a legal status under current laws?
The Credit Institution Law 2010 was formulated in 2008-2009, when the global financial storm was raging. The collapse of some international investment banks probably bred doubt and led lawmakers to ignore this form of banking. Upon closer scrutiny, it turns out that this law does not mention banking groups, either. This indicates the limited breadth of policymaking.
A judicious legal framework should not only make full adjustments of economic relationships and agents under present circumstances but also show foresight by providing new regulations that pave the way for enterprises to shine. For a largely undeveloped financial market such as Vietnam’s, the Government must embark on intensive research and boldly adopt modern models and financial innovations in other countries to nurture market development. In this aspect, the Credit Institution Law is a step backward although it can be argued that laws are amendable.
The Securities Law 2006 does not ignore investment banking, but suffers from a narrow scope of adjustment, which covers basic issues only and has yet to deal with every operation in the stock market in line with international norms. Guidelines have been overlapping, inconsistent and inadequate.
One also wonders who will supervise investment banks. Under current laws, investment banks in Vietnam are licensed and, therefore, supervised by SBV. In contrast, their peers in the U.S. are governed by the Securities and Exchange Commission (SEC). As investment banks operate mainly in capital markets, especially the stock market, SSC should arguably have some oversight of these institutions. Perhaps a consolidated authority, which comprises representatives from SBV and SSC, is necessary. Of course, the rights and obligations of these representatives must be clearly defined.
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