Cabinet Approves Four Draft Bills Modernizing Thailand’s Capital Market Legislation

Cabinet Approves Four Draft Bills Modernizing Thailand’s Capital Market Legislation

Introduction

The Cabinet has approved four draft bills proposed by the Ministry of Finance (“MOF”) and reviewed by the Office of the Council of State (“OCS”), pursuant to the Cabinet resolution of 14 February 2023 (B.E. 2566). The bills amend:

• the Securities and Exchange Act B.E. 2535 (1992) (“SEA”);
• the Derivatives Act B.E. 2546 (2003) (“DA”);
• the Trust for Transactions in Capital Market Act B.E. 2550 (2007) (“TTA”); and
• the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018) (“DAB”).

The case for reform is that provisions across all four instruments have fallen out of step with current market conditions, do not adequately accommodate rapid technological change, are inconsistent with one another on matters of shared subject matter, and in places lack the clarity needed for consistent interpretation.

Together, the draft bills address six areas:

• Promotion of the digital capital market;
• Supervision of business operators;
• Supervision of the secondary market and related organizations;
• Fundraising and the supervision of audit firms and capital market service providers;
• Enforcement and penalties; and
• The supervisory structure.

Two bodies are principally involved in the reforms: the Securities and Exchange Commission (“SEC”), which has the power and duty to set policy for the promotion and development of the Thai capital market, and the Office of the Securities and Exchange Commission (“SEC Office”), which implements that policy on the SEC’s behalf. The amendments under each of the four draft bills are summarized below.

1. The Draft Securities and Exchange Act (No. ..) B.E. .… (“Draft SEA”)

1.1 Capital market promotion

a. Preparing, sending, receiving, and storing information and documents, and advertising, disclosing, or distributing them, by electronic means will be expressly lawful. The SEA currently contains no such provision, although the practice is already well established.

b. A prospectus may be published through means other than printing, which is currently the only channel the SEA recognizes.

c. Where certificated securities are pledged as collateral, enforcement will be available through means outside the Thai Civil and Commercial Code. Where the instrument has a stated maturity and the debt has fallen due, the pledgee may collect on the due date without prior notice.

1.2 Supervision of securities companies

a. Major shareholder approval requirements move into the Draft SEA. A person holding, or benefiting from, shares carrying more than 10 percent of total voting rights must obtain SEC Office approval. This requirement currently sits in subordinate legislation.

b. The Minister of Finance may impose conditions requiring a securities company whose license has been revoked to take steps to protect investors’ interests.

c. Securities companies must prepare financial statements for both six-month and twelve-month periods, audited and opined on by an auditor, in the form the SEC Office prescribes. Under the current SEA, only six-month statements are required.

d. Supervision of auditors and audit firms, financial advisers, property valuers, credit rating agencies, offshore service providers, securities business personnel, and other service providers will be set out in the Draft SEA itself rather than in subordinate instruments, raising the standard applied to capital market personnel.

1.3 Trading venues and the secondary market

a. Securities trading centers are classified into two categories: licensed centers, open to general investors, and registered centers, open only to institutional investors, with the level of supervision depending on the degree of investor protection required.

b. Ownership of deposited securities is clarified. A depositor must maintain a list of the owners of securities deposited with the Stock Exchange of Thailand (SET), and a person named on that list is deemed the owner entitled to the securities of the class, type, and quantity recorded. The current SEA leaves the position of depositors’ clients unclear.

c. Associations connected with the securities business may invest their funds or income in debt instruments or other securities prescribed by the SEC, subject to SEC Office supervision, giving them an additional income channel.

1.4 Auditors, service providers, and critical systems

a. Financial reports must be audited by auditors and audit firms approved by the SEC Office, and capital market service providers must obtain SEC Office approval.

b. Significant system providers to the capital market become subject to supervision, including a requirement to hold sufficient funding to support their operations and associated risks.

c. Control over management and continuity is strengthened. Such a provider may appoint a director or manager, or contract out all or part of its management authority, only with SEC Office approval. The SEC may restrain conduct capable of causing serious damage to the public interest and may address the cessation of the provider’s business.

1.5 Enforcement and penalties

a. SEC Office officials will be able to conduct investigations alongside inquiry officials and special case inquiry officials in categories of offence that may seriously damage confidence in the capital market or affect the national economy.

b. Criminal penalties and administrative fines will be revised, with criminal liability retained only for serious offences or those contrary to good morals.

1.6 The supervisory structure

a. The Secretary-General of the Office of Insurance Commission joins the SEC as an ex officio member.

b. The Minister of Finance, the SEC, and the SEC Office each gain the power to reduce or waive fees for registration and capital market services.

c. The affairs of the SEC Office are placed outside social security legislation, aligning its position with that of other regulators such as the Bank of Thailand (BOT).

2. The Draft Derivatives Act (No. ..) B.E. .… (“Draft DA”)

2.1 Capital market promotion

a. See Section 1.1(a) above.

2.2 Supervision of securities companies

a. See Section 1.2(a) above.

b. The scope and characteristics of persons acting as investment consultants, investment analysts, investment planners, derivatives investment managers, or other functions notified by the Capital Market Supervisory Board (“CMSB”) will be prescribed. Such matters were previously prescribed in subordinate legislation.

c. Provisions will be introduced on the supervision of major shareholders, directors, and persons with management authority of a derivatives exchange. A person may hold shares in, or benefit from shares of, a derivatives exchange in excess of the threshold notified by the SEC only upon obtaining SEC Office approval, in accordance with criteria, conditions, and procedures notified by the SEC. Under the current DA, shareholding is capped at 5 percent.

2.3 Auditors, service providers, and critical systems

a. Derivatives business operators — other than derivatives advisors who are natural persons (a category not previously specified) — will be required to prepare accounts showing the results of their operations and their financial position as these actually stand, in accordance with professional accounting standards under the law on accounting professions and any additional requirements notified by the SEC.

b. Derivatives business operators will be required to prepare financial statements and submit them to the SEC Office, audited and opined on by a certified public accountant in accordance with criteria notified by the SEC and approved by the SEC Office.

2.4 Enforcement and penalties

a. See Section 1.5(a) above.

b. Administrative penalties will be prescribed for a derivatives exchange that contravenes or fails to comply with criteria, orders, or conditions prescribed by law.

2.5 The supervisory structure

a. Additional powers and duties are conferred on the SEC and the SEC Office to reduce or waive fees for applications for a license, registration, or approval; for the issuance of a license, acceptance of a registration, or grant of an approval; or for carrying on a licensed, registered, or approved business, in accordance with notified criteria and conditions.

3. The Draft Trust for Transactions in Capital Market Act (No. ..) B.E. .… (“Draft TTA”)

3.1 Capital market promotion

a. See Section 1.1(a) above.

3.2 Supervision of securities companies

a. Additional powers and duties are conferred on the SEC to reduce or waive fees for applications for permission, the granting of permission, or the carrying on of business under the Draft TTA, in accordance with notified criteria and conditions.

b. Regulations, rules, notifications, orders, or requirements issued under the Draft TTA by the CMSB and having general application will take effect upon publication in the Government Gazette, whereas the current TTA applies this requirement only to instruments issued by the SEC Board and the SEC Office.

4. The Draft Emergency Decree on Digital Asset Businesses (No. ..) B.E. …. (“Draft DAB”)

4.1 Capital market promotion

a. See Section 1.1(a) above.

4.2 Enforcement and penalties

a. See Section 1.5(a) above.

4.3 The supervisory structure

a. See Section 1.6(b) above.

Legal Basis and Objectives

The four draft bills are brought forward under Section 77 of the Constitution of the Kingdom of Thailand, which provides that the State should, without delay, revise laws that are no longer suited to prevailing circumstances or that obstruct the pursuit of an occupation, so that they do not burden the people.

Beyond this constitutional duty, the stated objectives are to accommodate the use of appropriate technology in capital market transactions, to create clarity in supervision, to improve enforcement in line with international regulatory standards, to remove duplicative processes, to advance State policy and capital market plans, and to raise the level of investor protection.

Consultation and Impact Assessment

The OCS and the SEC Office consulted state agencies, the private sector, and the public on all four draft bills, through both online submissions and focus group sessions. An impact analysis was prepared in accordance with the Cabinet resolution of 19 November 2019 (B.E. 2562), and both the consultation results and the analysis have been published online.

The MOF has also submitted a plan for the subordinate legislation to be issued under the four draft bills, including the intended timeframe and a framework of key content. That subordinate legislation comprises 183 instruments.

Key Takeaways

• The Draft SEA, DA, TTA, and DAB have cleared Cabinet and Council of State review and now proceed through the parliamentary process.
• The most immediate practical change is the statutory recognition of electronic documents and non-print advertising, which brings the SEA into line with existing market practice.
• Several matters move from subordinate legislation into the acts themselves, notably approval of major shareholders in securities companies and supervision of capital market service providers.
• Two newly regulated categories of person are introduced: capital market service providers (including auditors, financial advisers, and valuers) and significant system providers to the capital market.
• Enforcement is strengthened through joint investigation powers, while criminal liability is narrowed to serious offences, with other conduct shifting to civil administrative fines.
• The MOF has flagged 183 subordinate instruments to be issued under the four draft bills, meaning enactment will mark the start rather than the end of the reform process.
• Affected businesses should assess now whether they fall within the newly regulated categories, since approval requirements, funding thresholds, and management appointment controls will apply once the draft bills are enacted.

Author: Panisa Suwanmatajarn, Managing Partner.

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