ENHANCING THE EFFECTIVENESS OF THE FINANCIAL SUPERVISORY SYSTEM OF VIETNAM

1. ENHANCING THE EFFECTIVENESS OF THE FINANCIAL SUPERVISORY SYSTEM OF VIETNAM Pham Phan Dung General Director Banking and Financial Institutions Dept. Ministry of Finance, Vietnam International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

2. CONTENT Part I: The necessity to improve the financial supervision system capacity in Vietnam Part II: Orientation of determining the supervision model of the financial system in Vietnam Part III: Roles and functions of DIV in the national financial supervision system International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

3. CONTENT Part I: The necessity to improve the financial supervision system capacity in Vietnam 1.1 Introduction on the current supervision operation of the financial system in Vietnam 1.2 The fast moving financial market 1.3 Requirement of developing a market economy with Socialist orientation 1.4 The necessity to renovate supervision operation in accordance with international standards International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

4. 1.1 Introduction on the current supervision operation of the financial system in Vietnam • Supervision agency operates as policy maker and license issuer • A financial institution is subject to more than one supervision agency • Each supervision agency only functions in designated area • Lack of cooperation between supervision agency Lack of transparency, less effectiveness on overall supervision and early warning, creating burden to financial institutions International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

5. 1.2 The fast moving financial market • The Trend of mobilizing fund via financial market • Increase of systemic risk and effect to the national economy International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

6. 1.3 Requirement of developing a market economy with Socialist orientation • The commitment of the Government of Vietnam in the renovation process toward market economy • Renovating principles: State Management based on the law and regulation system. The economy develop under market disciplines • Continuing and unique policy: avoid overlapping, clear cut between responsibility of policy maker and supervisory function International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

7. 1.4 The necessity to renovate supervision operation in accordance with international standards • The effectiveness of consolidate supervision system • The trend of establishing consolidate supervision system in economic transformed countries and countries effected by the financial crisis International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

8. Contents Part II: Orientation of determining the supervision model of the financial system in Vietnam 2.1 Government Orientation 2.2 Types of financial supervision agency 2.3 Determine mandate and function of financial supervision agencies in Vietnam International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

9. 2.1 Government Orientation • Enhancing the effectiveness of financial market supervision, focus on the interaction between the monetary market and capital market • Set up an appropriate supervisory mechanism • Establish a general financial market supervision agency International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

10. Centralized model: Japan Korea U.K Diversified model: China Australia 2.2 Types of financial supervision agencies International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

11. 2.3 Determine mandate and function of financial supervision agencies in Vietnam Mandate & Function Objectives 1- Maintain the stability and sustainable development of the financial market 2- Protect the interest of market players Issuing license Determine process & Standards Supervision and examination Enforcement of violations and claims settlement Maintain the stability of financial market International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

12. CONTENTS Part III Roles and functions of DIV in the national financial supervision system 3.1 Function and position of DIV in the financial supervision system 3.2 Comments on the development of DIV International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

13. 3.1 Roles and functions of DIV in the national financial supervision system • DIV is a component of the financial market and national financial supervision system • Right to carry out examination of DIV • Right to carry out supervision of DIV • Mobilizing fund for claim payment International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

14. 3.2 Comment on strategic development of DIV • DIV to clearly determine the role and function in the national supervision system • Propose the Government to formulate the Law on Deposit Insurance • Improve the organizational structure, human resource and financial capacity • Diversify services and products, modernizing operation Best protect depositors, contribute to maintain the stability of the financial system in accordance with international standards International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007

15. Thank You ! PhamPhanDung@mof.gov.vn International Conference on Enhancing the Effectiveness of Deposit Insurance Operation, Hanoi March, 2007