As of March 2009
The Securities and Exchange Commission (SEC), Thailand, in 2007, went
through capital market regulation assessment under the Financial Sector
Assessment Program (FSAP), a joint initiative of the International Monetary
Fund and the World Bank. Assessment results reflect a satisfactory level of
Thailand’s compliance with the international standards. The assessors indicated
that the Thai regulatory framework for capital market, including supervision of
securities settlement systems, is fundamentally sound, secure, efficient and
reliable. A recommended plan of actions to address deficiencies identified
during the assessment, mostly in the legal framework, was also provided.
The SEC took into account seriously the identified shortcomings and
endeavored to take every step possible to have them improved. Up to present,
almost all of the issues of concern have already been addressed. The amendments
Securities and Exchange Act (No. 4) which came into force since 5 March
2008, have brought about improvements in most key areas of weakness,
|1.||SEC power to respond promptly to financial failures
of market participants
|2.||SEC power to provide investigatory assistance and
information of evidence upon request of foreign regulators, regardless of
whether the SEC has an independent interest
|3.||SEC power to bar listed firms’ directors and management with
|4.||SEC Board’s structure
|5.||SEC power to direct the Stock Exchange of Thailand (SET) to
issue new rules, revise or repeal the existing ones
|6.||SEC power to supervise TSD directly
|7.||Listed firms’ corporate governance, particularly in the aspects
of strengthened shareholder rights protection and responsibilities of directors
Other relevant regulatory reform for further development of the market has
also been in significant progress. Updates on SEC actions and/or arguments on
FSAP recommendations are summarized in the table below and the final report on
“Detailed Assessment on the Implementation of the IOSCO Objectives and
Principles of Securities Regulation” can be viewed here.
Remark : Other FSAP reports can be obtained here
Updates on Actions Taken in response to FSAP
Recommendations to Improve
Implementation of the IOSCO Objectives and Principles of Securities
(As of March 2009)
|Principles Relating to the
Regulator (P 1–5)||
1.Create a formal coordination mechanism among governmental agencies with
regulatory authority over the capital markets
The formal inclusion of the SEC’s
Secretary General in the Financial Institutions Policy Committee (FIPC) helps
improve coordination among regulators with regard to critical matters affecting
the financial system. As for the coordination at the working level staff, the
SEC and the BOT have close coordination, through regular consultations and
information sharing, particularly in the issues concerning clearing and
2.Amend the SEA to transfer final licensing authority over securities firms
to the SEC.
It is considered that the transfer of
licensing authority from the Finance Minister to the SEC is not necessary, as
the existing legal provision where the Minister has the final responsibility of
granting securities licenses is not a restriction in practice. Although
licensing eligibility requirements are in the form of Ministerial Regulation,
the process is always initiated by the SEC, and in the past whenever the SEC
proposed a scheme for granting new licenses, the Minister did not have any
3.Amend SEA to change nomination and appointment process for SEC Board
Upon enactment of the Securities and
Exchange Act (No.4) B.E. 2551, the SEC’s composition has been changed, so as
the nomination and appointment processes of SEC Board members. At present, the
Finance Minister no longer chairs the SEC Board. Rather, the SEC Chairman is
appointed from outside experts by the Cabinet’s resolution upon recommendation
of the Finance Minister. As for the expert commissioners in the SEC Board, the
new nomination and selection processes have been introduced. Under the
processes, the Finance Minister has the duty to appoint the Selection Committee
comprising ex-high ranking public officials and/or ex- SEC commissioners to
perform selection process of the expert commissioners in the SEC Board. The SEC
Chairman and the ex officio commissioners jointly nominate a list of experts to
the Selection Committee, twice the number of expert commissioners to be
appointed. The Selection Committee then conducts the selection process and
proposes the selected experts to the Finance Minister for
4.Confirm that the authority of the Minister of Finance under Section 262 of
the SEC does not extend to direct involvement in the daily operational
activities of the SEC.
The SEC, in practice has operational
independence in carrying out its day-to-day activities. Though the assessors
view that Section 262 in the SEA is theoretically open for possible
involvements by Finance Minister in SEC daily decisions, the provision has
never been invoked by any Minister.
5.The SEC should publish for public consultation the complete text of its
draft regulations in addition to its summaries.
The SEC has been conducting public
hearings on the proposed rules or amendments consistently through its website,
focus groups and seminars. Recently, full text of proposed rules or amendments
has been regularly published on its website.
6.The SEC should amend its code of conduct and provide that restrictions on
securities investments by its staff also applies to spouses, minor children and
all other account over which an employee has the authority to make investment
The SEC’s employees are prohibited from
investing in securities with certain exemptions, i.e. investment in investment
units of mutual fund and debt securities. Prohibition has been expanded to
include investment in derivatives products. The employee’s code of conduct has
recently been amended to enable a periodic review on investment accounts of the
employee and his or her spouse and minor children. Although the amended code of
conduct does not restrict securities investments of the employee’s spouse and
minor children, which would be considered an unfair restriction on their right
and liberty in making investment, the report of their investments will give the
SEC the information for monitoring purpose.
|Principles of Self-Regulation (P
7.The SEC should seek an amendment to the SEA to permit it as a matter of
discretion to review and approve or require changes to all SET rules, including
trading and operations rules.
Under the present legal framework of the
SEA, the SEC Board has the authority to order the SET to amend or revoke its
existing rules or to issue new rules, providing that the SEC Board considers
that the SET’s rules may cause damage to or prejudice the public interest or
insufficient to protect and maintain investor confidence.
8.The SEC should seek authority to act as an appellate reviewer of SRO
The current SRO disciplinary and appeal
process where the affected person or offender, disagreed with the actions, can
appeal to the Appellate Committee approved by the SEC and then to the
Administrative Court is considered as having sufficient check and
9.The adequacy of FAP resources to perform its required functions should be
carefully examined. If warranted efforts should be taken to increase the
funding of the FAP.
The SEC has continuously given financial
support to the Federation of Accounting Professions (FAP) since 2006 for the
development of Thai accounting standards, auditing standards and code of ethics
for professional accountants in line with international
|Principles for the Enforcement
of Securities Regulation (P 8–10)||
10.The SEC should examine the adequacy of surveillance of the OTC debt
The SEC undertook an assessment on
efficiency and adequacy of Thai Bond Market Association (ThaiBMA)’s
e-surveillance system and planned to conduct an on-site inspection in the first
quarter of 2009.
11.The SEA should be amended to substantially expand the enforcement
authority of the SEC. The SEC should have the authority to independently file
civil enforcement actions against any person or entity that violates the SEA or
the SEC regulations implementing the action. This authority should include
money sanctions, restitution to investors, and the ability to order corrective
SEC administrative authority over registered persons and entities should
include authority to impose money fines and to bar persons from serving as
Directors of listed companies.
The SEC should obtain the authority to refer criminal actions directly to
the Public Prosecutor, without a separate review by the Thai Royal Police or
the Department of Special Investigations.
An analog of the Settlement Committee should be created to consider SEC
civil actions, including those based upon fraudulent misconduct.
The SEC is of the view that the power to
file civil enforcement actions independently, including the power to impose
money sanctions against the violators of the SEA would help improve the SEC’s
enforcement authority significantly. However, since civil sanctions are not
applicable in the Thai legal system, the SEC in late 2006 commissioned the
Institute of Legal Research Foundation to study on the alternative enforcement
measures against securities law violations. The study report, completed in
early 2008, has proposed a draft Bill to reform securities law enforcement
programs by making avail for the SEC a variety of measures such as civil
sanctions and administrative sanctions. The SEC agrees in principle with the
suggestions made in the report and is currently in the process of finalizing
the proposed draft Bill before submitting to the Government for legislation
As for the SEC administrative authority to
bar persons from serving as directors of listed companies, the newly amended
securities law has explicitly empowered the SEC to bar listed firms’ directors
and management with prohibited characteristics.
12.The SEC should be given the authority to temporarily suspend trading in
individual securities, when warranted.
It is considered that the existing
framework that the SET, as a front line regulator, exercises the power to
temporarily suspend trading of individual securities, while the SEC has the
authority to suspend trading of the whole market for the safeguard against
damage to public interest is still appropriate.
13.The SEA should be amended to authorize a court to order a person or
company to comply with an SEC request to testify or to produce documents in an
A study on the issue has been
14.A private class action legal case should be permitted.
The Class Action Act came into effect on
March 5, 2008, enabling shareholders and investors to pursue lawsuits against
the directors for breaches of duties more conveniently and with less concern
|Principles for Cooperation in
Regulation (P 11–13)||15.A formal MOU with other Thai regulatory bodies
should be finalized, providing for a full exchange of information on all
regulatory actions taken or contemplated and relevant to other signatories. A
coordinating body of senior officials should be created for the exchange of
regulatory ideas and discussion of regulatory policies.
Please see 1 above
16.The SEA should be amended, consistent with the DA, to enable the SEC to
seek information on behalf of foreign regulatory bodies, consistent with
international standards for cooperation.
Under the newly amended SEA, the SEC is
empowered to provide investigatory assistance to foreign regulators upon
request even in the case that the SEC does not have its own interest in the
matter. Following this development, the SEC became a full signatory to the
IOSCO Multilateral Memorandum of Understanding Concerning Consultation and
Cooperation and the Exchange of Information (IOSCO MMoU) in May 2008, enhancing
effectiveness of its cross-border enforcement actions.
|Principles for Issuers (P
17.The SEC should seek amendments to the SEA in accordance with the 2005
ROSC on corporate governance. These include authority to issue regulations
governing the annual and special shareholder meeting process, including timing
of notices, minimum number or percentage of shareholders required to request a
meeting or to add items to the agenda, to remove a director, to require
cumulative voting in director elections and to extend the legal fiduciary
duties of company directors so that they apply to senior management of a
All of the above issues of concern have
already been addressed under the newly enacted SEA amendments. In essence, the
law has enhanced protection of shareholder rights significantly through (1)
shareholders’ ability to propose agenda items for the shareholder meetings; (2)
channels for shareholders to seek legal redress, whereby they are entitled to
file, on behalf of the company, the claim to disgorge ill-gotten gains obtained
by company directors or management in bad faith. Shareholders also have rights
to receive reasonable litigation expenses from the company by court order,
since they act for the benefit of the company as a whole.
18.Because Thai accounting standards are in transition and the FAP is still
in a formative period, accounting and auditing ROSCs would be appropriate in
the near future.
Thailand went through accounting and
auditing ROSCs in 2008, with the FAP as core coordinator.
|Principles for Collective
Investment Schemes (P 17–20)||No significant recommended actions
|Principles for Market
Intermediaries (P 21–24)||
19.The restriction on new securities dealers’ licenses is inconsistent with
an equitable application of licensing policy. The 2012 deadline should not be
Starting January 1, 2012, the SEC will
accept unlimited applications for new securities licenses, providing that
applicants meet the “fit and proper” requirements for each category of licenses
being sought for. The new licensing criteria will be in the form of single
license allowing license holders to engage in a full range of securities
businesses. Those who seek to engage in a specific category of securities
businesses will be able to apply for “boutique services” licenses. The
Ministerial Regulation governing this new licensing regime has been passed in
February 2008. This regulation clearly states that by 2012 applications for new
brokerage licenses will be accepted.
20.The one month record retention requirement for tape recorded customer
calls should be extended.
Record retention requirement is extended from 1 to 3 months, starting from
21.The highest priority should be given to empowering the SEC to take all
necessary action, such as the authority to appoint a liquidator or receiver to
protect customer accounts and to preserve assets of a securities firm that
fails and to transfer or deliver out customer assets in the event that a failed
firm misappropriates them. Related issues of bankruptcy law protection for
customer assets held in street name, and settlement integrity for unsettled
transactions should also be addressed.
The SEC must have clear authority to isolate a failing firm’s risks to
prevent systemic market failures.
The recommended MOU with other regulators should also provide for advance
warnings of potential firm failures to ensure effective and timely response to
possible systemic risks.
The amended SEA has given the SEC and
Thailand Securities Depository Center (TSD) the authority to act in the event
of a securities firm’s failure, including the power to segregate and administer
client assets. Regarding the issue of MOU, please see 1 above.
|Principles for the Secondary
22.Transparency in the equity market is sound and improving in the debt
market. Further efforts may be appropriate, such as creation of better depth of
book disclosure for equities and meaningful electronic disclosure of dealer
quotes in the debt market.
Please see 9 above
23.As previously noted, amendment of the SEA to authorize SEC discretionary
authority to review all SET rules is warranted.
Please see 6 above
24.Amendment of the law is required to clarify the definition of prohibited
market misconduct, such as insider trading and market manipulation.
The SEC has conducted a research with a
view to improving law enforcement against market misconduct. Once the research
is concluded, the SEC will proceed with drafting the Bill and submitting it to
the Government for legislation process.
25.A full ROSC on the securities clearance and settlement system would be
Thailand went through an assessment of the
securities settlement system, also in the context of FSAP, in May 2007. The
report on the assessment results can be viewedhere.
26.The TSD should have the legal authority of a central counterparty and not
have discretion to decline to settle trades. Member firm security deposits
should be legally under the TSD and not subject to creditor rights in
This recommended action has been taken
into account and included in the TOR of the Technical Assistance on central
counterparties (CCP) requested from the IMF.