Requirements for internal control system of non-bank credit institutions in Vietnam

What is an internal control system?

Pursuant to the provisions of Circular 14/2023/TT-NHNN, internal control system means a combination of mechanisms, policies, processes, internal regulations and organizational structures of a non-bank credit institution in accordance with regulations of the Law on Credit Institutions 2010, Circular 14/2023/TT-NHNN and other relevant regulations of law and is implemented with a view to controlling, preventing, detecting and handling risks, and fulfilling requirements that have been set out.

The internal control system carries out senior management supervision, internal control, risk management and internal audit.

Requirements for internal control system of non-bank credit institutions in Vietnam (Internet image) 

Requirements for internal control system of non-bank credit institutions in Vietnam

Requirements for internal control system of non-bank credit institutions in Vietnam are specified in Article 4 of Circular 14/2023/TT-NHNN as follows:

(1) The internal control system of a non-bank credit institution shall fulfill the following requirements:

- Meeting requirements according to regulations of the Law on Credit Institutions 2010;

- Being appropriate for the scale, conditions and complexity of the non-bank credit institution’s business activities;

- Having sufficient financial, human and IT resources in order to ensure the internal control system’s effectiveness;

- Creating and maintaining control culture and work ethics for the non-bank credit institution.

(2) The non-bank credit institution shall have internal regulations in compliance with regulations of the Law on Credit Institutions 2010, in which the following requirements shall be met:

- Being consistent with regulations in Circular 14/2023/TT-NHNN and relevant laws;

- The Board of Directors or the Council of Members promulgates regulations on the non-bank credit institution 's organization, management and activities, except for matters under the competence of the Shareholders’ Council and owner; the Board of Controllers promulgates its own internal regulations; the Director General (Director) promulgates work regulations, processes and procedures (hereinafter referred to as “internal process”);

- Being subject to regular assessments specified in Circular 14/2023/TT-NHNN and the non-bank credit institution’s regulations on appropriateness of and compliance with the law, and making amendments if necessary.

(3) The internal control system shall have three lines of defense as follows:

- The first line of defense has functions of risk identification, control and minimization carried out by the following departments: business departments (including 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 to a business department or an independent department) in each type of transactions and business activities; human resource department, accounting department;

- The second line of defense has functions of formulation of risk management policies and issuance of internal regulations on risk management and monitoring in accordance with regulations of law, carried out by the following departments: Departments conforming to the regulations in Article 16 of Circular 14/2023/TT-NHNN and risk management department specified in Article 18 of Circular 14/2023/TT-NHNN;

- The third line of defense has the function of internal audit carried out by the internal audit department specified in the Law on Credit Institutions 2010, Circular 14/2023/TT-NHNN.

(4) Discussions and conclusions on the internal control system in meetings held by the Board of Directors, Council of Members, Board of Controllers, Risk Management Committee, and Human Resource Committee shall be recorded in writing, in which agreements and disagreements of members shall be specified.

(5) Independent assessment of the internal control system shall be carried out in accordance with the State Bank’s regulations on independent audit in non-bank credit institutions and foreign bank branches.

Mai Thanh Loi

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