Vietnam’s AI and crypto sectors brace for impact as tighter regulations approach

[HO CHI MINH CITY] As Vietnam’s digital economy rapidly evolves, new and potential legislation on data protection and virtual assets could prompt artificial intelligence (AI) and blockchain innovators to slow down and proceed with caution.

This regulatory uncertainty could risk hindering technological advancement and deter investment in these sectors. 

Legitimate scientific research and innovative endeavours that rely on data may face obstacles, as there are now few scenarios where organisations are not required to obtain consent from data subjects, Baker McKenzie Vietnam’s head of intellectual property and technology Tran Manh Hung told The Business Times.

Similarly, the blockchain sector, central to the growing virtual asset market, also faces significant uncertainty as Vietnam’s authorities are poised to clarify the cryptosphere with a decision to ban or regulate virtual assets and service providers expected by May next year.

“A ban will push it from a ‘grey area’ into the illegal black market. Since virtual assets are already an irreversible global trend, enforcing the ban could become extremely complicated for the authorities,” Vietnam Blockchain Association (VBA) vice-chairman Phan Duc Trung told BT. 

The South-east Asian country is implementing various regulations and guidelines to protect consumer data and prevent cybercrime. It is hoped that these will instil confidence in the country’s digital landscape and support the tech sector’s growth while aligning with international standards.

However, striking the right balance between establishing sufficient safeguards and avoiding overly restrictive measures that stifle innovation is challenging.

“Regulation is changing to make things clearer, not to make things easier,” remarked Vietnam’s fintech unicorn VNLife chief executive Niraan De Silva at the Tech in Asia summit in Ho Chi Minh City in May.

Barriers to AI development

In July last year, Vietnam issued a decree on personal data protection – its first comprehensive data protection regulation.

This decree applies to both Vietnamese and foreign entities processing personal data in the country, aiming to ensure individuals’ privacy and foster trust in the data management practices of organisations.

However, it is not without flaws.

Industry players warn that the rules may deprive Vietnam of major data-leveraged scientific breakthroughs. Nguyen An Nguyen, chief executive of Vietnam-based AI fintech startup Trusting Social, had voiced this concern at the tech summit.

Data usage in AI training and adoption has yet to be addressed in Vietnam’s current legal framework, prompting the country to consider more thorough regulation through a dedicated personal data protection law.

In its national strategy unveiled in 2020, Vietnam set a goal to be among Asean’s top four and the world’s top 50 leading nations for AI research, development, and application by the end of this decade.

The strategy recognises AI as a foundational technology essential for creating breakthroughs in production capacity and enhancing national competitiveness.

Nguyen suggested that regulators consider adopting practices from the European Union’s General Data Protection Regulation, which allows for exemptions to strict regulations if personal data has been processed using approved privacy-enhancing methods such as anonymisation or pseudonymisation.

“I hope that in the next couple of years when the regulation on digital data protection becomes a law, (the government) will take into account the needs of AI companies and the needs of society to push research improvements in all areas,” he added. 

Virtual assets out of grey area 

Vietnamese authorities are also set to bring clarity to the cryptosphere, with a decision to either ban or regulate virtual assets and virtual asset service providers expected next year. 

This move follows the Financial Action Task Force (FATF) including Vietnam in its “grey list” last June, identifying it as one of 26 jurisdictions under increased monitoring due to deficiencies in its anti-money laundering and countering the financing of terrorism regimes.

A study carried out in 2021 by the International Monetary Fund discovered that grey-listing has a notable impact on capital inflows, leading to a decrease on average of 7.6 per cent of the gross domestic product when a country is added to the grey list.

“The absence of a clear and transparent legal framework for virtual assets and virtual asset service providers potentially fosters a breeding ground for illicit activities and undermines trust in legitimate businesses over time,” noted Baker McKenzie’s Hung.

A survey conducted by FATF in 2023 found that 75 per cent of 151 jurisdictions still struggled with fundamental requirements to regulate virtual asset service providers, creating significant loopholes for criminals to exploit.

From October 2021 to October 2022, the total value of cryptocurrencies received in Vietnam was nearly US$91 billion, of which illegal transactions made up about 1 per cent or US$956 million, according to statistics from US blockchain analysis firm Chainalysis.

While the sector is still unregulated in Vietnam, payment platform Triple-A estimated that more than 21 per cent of the Vietnamese population already owned cryptocurrencies as at 2023. 

This rate is the second highest globally, behind only the United Arab Emirates, and is nearly three times greater than the country’s stock-ownership rate, which is less than 8 per cent.

With the raw estimated crypto transaction volume between July 2022 and June 2023 at around US$120 billion, the country is ranked by Chainalysis as one of the top crypto markets in the world and a leading crypto hub in the South-east Asian region. 

Vietnam also came in third globally for cryptocurrency gains in 2023, raking in almost US$1.2 billion, trailing behind only the United States and United Kingdom.

As blockchain is the primary technology underpinning the creation and movement of virtual assets including cryptocurrencies and non-fungible tokens, regulatory uncertainty is plaguing various businesses employing this technology in Vietnam.  

VBA, which represents around 100 blockchain companies in the country, has held multiple conferences over the last year to solicit feedback and introduce best practices on the legal framework of this asset class.

“There is a clear competition among countries to attract virtual assets. Vietnam will have an edge if it can provide clearer regulations while the majority are still in a haze,” Trung said.