To create effective supervisory mechanism and sustainable capital market, the SEC has moved towards more principle-based regulations and self-discipline among practitioners by using four major instruments as follows:
1. Preventive regulationsTo ensure that preventive regulations are carried out as deemed necessary to benefit investors and the capital market as a whole, and simultaneously observe the rights of stakeholders, the SEC implements the following procedure:
· To assess the importance of matters to be under preventive regulations without which the reliability or efficiency of the capital market may be affected;
· To study international supervisory measures or standards and analyze their pros and cons;
· To consult with the practitioners by arranging focus group meetings and conducting public hearings. (In 2012, the SEC held 22 public consultations via its website.) In case of a high impact regulation, a large-scale seminar may be necessary. Moreover, the proposed measure is considered by a sub-committee whose most members are representatives from the private sector. These steps ensure that the measure to be taken is appropriate, practical and respectful to stakeholders’ rights;
· To review whether draft notifications are authorized by law, and the contents are consistent with other regulations of a similar sort, clear and practical;
· To go through new or amended regulations with practitioners to ensure their correct understanding and implementation, and to assign an officer to take care of each company under the SEC supervision.
· To protect investors from unfair practices and ensure the availability of adequate information for making a right investment decision, the SEC requires that companies obtain an approval prior to issuance and offer for sale of securities; however, the consideration process must not impose excessive obstacles or costs on the issuing companies.
· The SEC requires that securities issuing companies disclose information, including financial statements, management structure, and risk management measures to enable investors, the media, and the SEC to monitor their operation. Such disclosure of information is a driver of self-discipline and encourages issuers to pay more attention to matters subject to the disclosure rules.
· The SEC monitors and supervises material transactions and complaints to prevent unfair practices and protect the rights of investors.
The SEC encourages the corporate governance and social responsibility of listed companies through various measures and collaboration with several agencies such as the SET, the Thai Institute of Directors (IOD), the Thai Listed Company Association, and the Thai Investors Association.
Illegal practices are relatively infrequent considering the overall normal transactions in the capital market; however, damage incurred from a few cases could tarnish the confidence of investors and stakeholders on a wider scale. Thus, the SEC gives serious consideration to law enforcement under the principles of (1) disgorgement, (2) discipline and (3) deterrent. Enforcement information is disclosed to the public on the SEC website. The SEC has the power to pursue two types of legal action, as the case may be, as follows:
· Administrative sanctions: If a party involved in malpractice fails to perform duties in accordance with standards, or is disqualified, the SEC shall command improvements in its practices, suspensions of its license for a specified period of time, or even a revocation of its license depending on the severity of the case. If the penalized party disagrees with the SEC order, an appeal can be filed. Administrative sanction ensures that supervision will proceed stringently and efficiently, and that intermediaries and their employees will carry out their operation responsibly pursuant to professional and ethical standards.
· Criminal sanctions: The procedure can be carried out according to either one of the two channels as follows:
1. In case of a violation without a widespread impact and liable to criminal fining, the SEC shall submit the case to the Criminal Fining Committee, appointed by the Minister of Finance and comprising representatives from the Royal Thai Police, the Bank of Thailand, and the Fiscal Policy Office. The Committee shall determine the amount of fine to be paid to the Ministry of Finance;
2. In case of a criminal offence not liable to the criminal fining process or having a widespread impact or the offender refuses to enter the criminal fining process, the SEC shall file a criminal complaint with the inquiry official of the Department of Special Investigation (DSI) or the Economic Crime Investigation Division (ECID) of the Royal Thai Police, depending on the nature of the offence, for further investigation and gathering of evidence. If the inquiry official deems a contravention of relevant law has occurred, the case shall be forwarded to the Office of the Attorney General (OAG) for criminal prosecution.
In enforcing the law using the above channels, the SEC takes the due process approach based on legal principles and available evidence while also taking into account the rights of the accused party to clarify. A detailed consideration procedure is laid out and a working committee appointed to review the case and make recommendations. In case of an administrative sanction, external experts will be invited to join the committee to ensure that the decision follows international standards of the private sector involved.
Additionally, the SEC relies on the Check and Balance System whereby the Audit Committee and the Internal Audit Department are responsible for reviewing and giving recommendation to the SEC Board on the matters related to internal control and compliance.
Furthermore, collaboration has been established with external agencies as well as international organizations ranging from collection of evidence to criminal prosecution. From February 2013 onwards, price manipulation and insider trading have become a predicate money laundering offence according to the Anti-Money Laundering Act B.E. 2556 (2013). The Anti-Money Laundering Office is therefore another agency that plays an important role in law enforcement against offenders of such financial crimes.
However, although effective law enforcement mechanisms are in place, a committed criminal offence has a costly negative impact on the public confidence in the capital market. The SEC therefore gives a greater emphasis on proactive prevention by formulating regulations and monitoring procedures to avert and minimize such offences.
4. Supportive measures
In addition to the aforementioned mechanisms, the SEC employs other measures to complement its role in regulating the capital market according to the SEC’s vision. Some of the additional measures are:
· Promoting exercise of investors’ rights by various means and through different media, such as amending related laws and regulations to strengthen their rights or enable them to participate more in criminal prosecution, and proposing class action law to allow investors to seek compensation for their loss more efficiently;
· Encouraging institutional investors to disclose their voting policy and voting results of each shareholders’ meeting to send a signal to the listed company as to what matters are on institutional investors’ agenda. Such information could be a useful reference for retail investors to make their own voting decision;
· Endorsing the IOD’s operation from the policy level – an SEC management level executive serves on the IOD Board – to implementation and financial aid for IOD projects to improve the quality of board of directors and Thai listed companies in line with international standards;
· Supporting the work of the ASEAN Capital Markets Forum (ACMF) – a joint initiative of the regional securities regulators endorsed by the Ministers of Finance of ASEAN countries – in organizing the ASEAN Corporate Governance Scorecard (ASEAN CG Scorecard) to improve regulatory standards and practices for supervision of ASEAN listed companies.