LEGAL ARCHITECTURE, REGULATORY CHALLENGES AND DISPUTE RISKS IN BUILDING AN INTERNATIONAL FINANCIAL CENTRE IN VIETNAM

1. From Policy Ambition to the Need for Legal Architecture

Main table of contents

In recent years, Vietnam has clearly demonstrated its ambition to establish an International Financial Centre (IFC) in order to attract global capital flows, enhance its position within the regional financial value chain, and promote sustainable economic growth.

While this direction was previously articulated primarily at the policy level, the IFC initiative is now entering a new phase: the phase of institutional design and operational framework development.

In this context, the core issue is no longer whether Vietnam should develop an IFC, but rather a more fundamental question:

Is Vietnam’s existing legal system ready to support the operation of a genuine IFC?

The answer lies not merely in the introduction of incentives, but in the ability to establish a coherent, flexible and predictable legal architecture—a decisive factor in building investor confidence.

2. The Gap Between Policy Direction and Implementation Capacity: A Question of Legal Architecture

The policy direction to develop an IFC has been established through recent orientations and resolutions of the National Assembly and is gradually being concretised through subordinate legislation aimed at shaping the operational mechanism, tax policies, and regulatory framework.

However, from a practical implementation perspective, the gap between policy direction and the effective operation of an IFC remains heavily dependent on the maturity of the legal architecture.

Initial steps taken by regulators reflect a clear commitment to building such a framework. Nevertheless, the current system still exhibits characteristics of a transitional phase, where regulations governing investment, finance, banking, foreign exchange, and taxation continue to operate within separate legal regimes.

In practice, advisory experience with foreign investors suggests that the main difficulty does not lie in the absence of regulation, but rather in the fact that existing rules—although relatively comprehensive within each sector—are not designed to function in an integrated manner within a single transaction structure. A financial transaction may simultaneously be subject to investment law, foreign exchange regulations, tax law, and banking regulations, yet these frameworks are not always aligned in terms of regulatory logic.

Accordingly, the principal challenge in developing an IFC in Vietnam is not the introduction of additional special mechanisms, but the ability to translate policy directions into an integrated, coherent and operational legal architecture.

3. Opportunities and Limitations Under the 2025 Law on Investment and the “Post-Licensing” Approach

The Law on Investment 2025, effective from 1 March 2026, reflects a significant shift in Vietnam’s regulatory approach to investment activities. The reform emphasises reducing ex-ante approvals, expanding business freedom, and transitioning towards a post-licensing model, accompanied by enhanced transparency and compliance accountability.

From a structural perspective, the 2025 Law on Investment provides greater openness compared to previous frameworks, particularly by allowing more flexibility for investors in structuring and implementing their investments.

In the context of IFC development, this shift is particularly significant. An IFC is not limited to traditional investment projects but must also accommodate complex financial structures, specialised institutions, and innovative business models with high levels of flexibility. In such an environment, a legal framework oriented towards post-licensing can facilitate market entry and the restructuring of investment activities.

However, the limitations of the post-licensing model also become apparent. Such a model only enhances market confidence where the legal system enables investors to reasonably predict legal risks. If entry requirements are relaxed but inconsistencies arise in enforcement, inspection, or legal interpretation, flexibility may quickly turn into uncertainty.

In practice, despite the shift towards post-licensing, the legal system continues to maintain control points in sensitive areas, particularly those involving foreign investors and capital flows. This indicates that Vietnam is not moving towards full liberalisation but is instead redistributing regulatory risk across different stages of the investment lifecycle.

Therefore, while the Law on Investment 2025 creates important “openness” for IFC development, the decisive factor remains the quality of the broader legal ecosystem, particularly its ability to transform regulatory flexibility into investor confidence.

4. The Real Challenge: Regulatory Integration Rather Than Incentive Design

A common misconception is that the attractiveness of an IFC primarily depends on incentive mechanisms. However, international experience shows that the decisive factor lies not in the level of incentives, but in the ability of the legal system to operate as a coherent and predictable whole.

In Vietnam, the issue is not the absence of legal instruments, but the fact that these instruments have not yet been designed to function as a unified system. The operation of an IFC inherently lies at the intersection of multiple regulatory regimes, each developed with distinct policy objectives and not always compatible in the context of cross-border financial transactions.

It is precisely at this intersection that legal risks emerge. Businesses must not only comply with regulations but also actively resolve legal inconsistencies through interpretation and transaction structuring, thereby increasing compliance costs and uncertainty.

An IFC does not lack incentives; the issue lies in the fact that existing regulations have not been designed to operate as a system.

Accordingly, reform efforts should not focus solely on introducing additional incentives, but rather on establishing a coordinated regulatory framework that ensures harmonious design and implementation across legal regimes.

5. Dispute Resolution: From an “Ex Post Mechanism” to Core Financial Infrastructure

In many policy models, dispute resolution is often treated as an ex post mechanism, activated only after disputes arise. However, such an approach is insufficient for an IFC.

In reality, for international investors, the ability to resolve disputes effectively is not merely a matter of legal protection but a key factor in investment decision-making. An effective dispute resolution system not only resolves conflicts but also reduces perceived risk, thereby directly influencing the cost of capital and investment allocation decisions.

In this context, the issue is not merely the existence of arbitration or court systems, but the quality of their operation, including efficiency, consistency in decision-making, expertise of adjudicators, and most importantly, enforceability.

For Vietnam, IFC development therefore cannot be separated from a comprehensive upgrade of dispute resolution infrastructure, both institutionally and in terms of enforcement practice. In the long term, the establishment of specialised mechanisms—such as financial courts or specialised arbitration—may become a decisive factor in enhancing market confidence.

From this perspective:

Dispute resolution is not a supporting mechanism, but an integral component of financial architecture.

6. IFC in the Context of Green Finance, ESG and Digital Transformation

The development of an IFC in Vietnam must be viewed within the broader transformation of global financial markets. While IFCs were traditionally defined by capital attraction and financial services provision, modern financial centres are increasingly shaped by new standards.

Green finance and ESG principles are becoming core pillars of the global financial system. Capital flows are increasingly directed towards projects that meet sustainability, transparency, and accountability standards. This requires not only the design of appropriate financial instruments but also a credible legal framework capable of establishing and supervising ESG standards.

At the same time, the rapid development of fintech and digital assets is reshaping market operations. New business models, from digital payment platforms to decentralised finance, require more flexible legal approaches, including controlled regulatory experimentation mechanisms such as sandboxes.

However, flexibility must be accompanied by effective risk control. The absence of clear legal frameworks for digital assets, or inconsistencies in investor protection and capital control regulations, may significantly increase systemic risks. The challenge, therefore, lies not merely in enabling innovation, but in designing a legal framework that balances innovation with market discipline.

7. Legal Risks and the Limits of Reform

Alongside strategic opportunities, the development of an IFC also entails significant legal risks. One notable risk is regulatory arbitrage, where market participants exploit differences or gaps between legal systems to optimise their positions. In a specialised IFC regime, such risks may become more pronounced if regulatory frameworks are not carefully designed and supervised.

Moreover, IFCs are characterised by rapid and large-scale capital flows, requiring legal systems capable of managing sudden fluctuations, particularly in relation to financial stability and systemic risk control.

More fundamentally, legal reform has inherent limits. An IFC cannot function effectively if it relies solely on special mechanisms or preferential rules while the broader legal system remains fragmented or inconsistent. In other words, the sustainability of an IFC depends not on legal exceptions, but on the overall quality of the national legal system.

The key challenge therefore lies not in adopting additional regulations, but in ensuring that the legal system operates in a coherent, transparent, and predictable manner—conditions essential for building investor confidence.

8. Success Lies Not in Incentives, but in the Credibility of the Legal System

The development of an IFC in Vietnam is not merely a policy initiative, but a test of the country’s institutional capacity. While incentives may serve as an initial catalyst, long-term success depends on deeper structural factors—namely, the quality of legal institutions.

Successful financial centres around the world are not defined by superior incentives, but by their ability to maintain a stable, transparent, and predictable legal environment. Investors seek not only returns, but also certainty in how laws are applied, interpreted, and enforced.

In this context, the greatest challenge for Vietnam lies not in introducing additional special mechanisms, but in ensuring that these mechanisms are consistently integrated into the broader legal system. An IFC cannot function effectively as a legal exception; it must be built upon a robust legal order capable of supporting complex cross-border financial activities.

More broadly, IFC development requires a shift in legislative thinking—from sectoral regulation to a systemic approach that recognises the interdependence of different legal domains.

Ultimately, the success of Vietnam’s IFC will not be determined by the number of incentives introduced, but by the degree to which the legal system can generate investor confidence.

A financial centre is not built on incentives, but on trust—and that trust can only be sustained by a legal system that is coherent, transparent, and predictable in practice.

REFERENCES

The analysis in this article is based on Vietnam’s current legal framework and relevant policy documents on the development of an International Financial Centre during the period 2025–2026.