Headlines 29/11/2023 10:58 SA

Vietnam’s 3 mandatory independent lines of defense in the internal control system of non-bank credit institutions

Dương Thanh Trúc

On November 20, 2023, the Governor of the State Bank of Vietnam promulgated Circular No. 14/2023/TT-NHNN on the internal control system of non-bank credit institutions.

- The first line of defense has functions of risk identification, control, and minimization performed by business departments (including the product development department), other revenue-generating departments; departments responsible for making risk-bearing decisions; departments responsible for risk limit allocation, risk management, and risk minimization (affiliated with a business department or are independent) in each type of transaction and business activity; human resource department, accounting department;

- The second line of defense has functions of developing risk management contents and internal regulations on risk management and monitoring in compliance with laws performed by the Compliance Department prescribed in Article 16 and the Risk Management Department prescribed in Article 18 of Circular No. 14/2023/TT-NHNN.

- The third line of defense has the function of internal audit performed in compliance with the Law on Credit Institutions and Circular No. 14/2023/TT-NHNN.

Other requirements for internal control system of non-bank credit institutions

- An internal control system of a non-bank credit institution shall:

+ Meet the requirements for an internal control system according to the Law on Credit Institutions;

+ Be in conformity with the scale, condition, and complexity level of the business operation of the non-bank credit institution;

+ Have sufficient resources of finance, personnel, and information technology to ensure the efficiency of the internal control system;

+ Develop and maintain the control culture and occupational ethic standard applicable to the non-bank credit institution.

- The non-bank credit institution shall have internal regulations in compliance with the Law on Credit Institutions that ensure:

+ Conformity with Circular No. 14/2023/TT-NHNN and relevant laws;

+ The Board of Directors and the Member’s Council’s promulgation of regulations on the organization, administration, and operation of the non-bank credit institution, except for issues subject to the jurisdiction of the Shareholders’ Council and owner; Control Board’s promulgation of its internal regulations; Director General’s (Director) promulgation of regulations, processes, and procedures (internal procedures);

+ Periodic assessments according to Circular No. 14/2023/TT-NHNN and regulations of the non-bank credit institution regarding compatibility, compliance with laws, and amendments (if necessary).

- Discussions and conclusions on the internal control system in meetings of the Board of Directors, Member’s Council, Control Board, Risk Management Committee, and Personnel Committee shall be recorded in writing, which specified agreements and disagreements among members.

- The independent assessment of the internal control system shall be performed according to the regulations of the State Bank of Vietnam on independent audits for credit institutions and foreign bank branches.

See more details in Circular No. 14/2023/TT-NHNN effective as of October 1, 2024.

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