Digital Transformation in Enforcement Measures of Capital Market
As the laws under the supervision of the Securities and Exchange Commission (“SEC”) do not respond to practical, (1) the technological changes, as some procedures cannot be fully utilized electronically, (2) the legal proceedings are not fully effective under current law, and (3) the penalties are inconsistent with statutory penalties and the legal supervision is unclear and inconsistent. Thus, they resulted in the following law amendments, including transforming services into digital systems, increasing the country’s competitiveness, and ensuring that the public has easy access. The following regulations have been approved in principle and recently acknowledged by the cabinet:
The bill of the Securities and Exchange Act as amended No. .. B.E. …. (“Item 1”)
The bill of the Derivatives Act as amended No. .. B.E. …. (“Item 2”)
The bill of the Trust for Transactions in Capital Market Act B.E. 2550 (2007) as amended No. .. B.E. …. (“Item 3”)
The bill of the Emergency Decree on Digital Asset Business B.E. 2561 (2018) as amended No. .. B.E. …. (“Item 4”)
The essence of these 4 amendments is to guarantee the use of appropriate technology for proceeding with the various transactions in the capital market, creating clarity in supervision, and increasing efficiency in law enforcement. The subjects of the four bills mentioned above that have been amended and stipulated are as follows:
Increasing support for electronic processes in capital markets (e.g. requesting permission, reporting, submitting, or filing documents shall be performed only via electronic channels.)
Specifying additional witness protection in inspection and gathering the evidence by competent officials according to the agreement between the Witness Protection Office and the Securities and Exchange Commission under the same guidelines as the Witness Protection Act B.E. 2546 (2003).
Further amendment of each bill are as follows:
Amending the authority of the competent officer of the office of the Securities and Exchange Commission to have the power as same as that of an inquiry officer so that such officer will be able to investigate certain offenses in Item 1, Item 2, and Item4.
Amending the penalties in Item 1 and Item 2.
Amending the supervision of secondary market securities business operators and authorities related to the securities business in Item 1.
Improving the fundraising system and supervision of auditors and capital market professionals in Item 1.
Adding the principles regarding collecting fees for business operation, professional practice, and other services as approved by the Securities and Exchange Commission in Item 1.
Improving the supervision of derivatives business operators, secondary markets, and related organizations and persons in Item 2.
Also, the cabinet has acknowledged in regard to the preparation of the subordinate legislation which will be issued by virtue of the aforementioned 4 bills as proposed by the Ministry of Finance.
In conclusion, these four bills will support the promotion of the digital capital market. Investors and business operators will be easier to access the capital market. At the same time, the authorities will be easier to monitor business operators in the secondary market and capital market.
Digital Platform Service Operation to Be Regulated
The regulation of digital platform services to be imposed by the government should be based on a set of fair and transparent rules that are applicable to all parties. These rules should ensure the safety of users, ensure data privacy and security, protect against anti-competitive practices and ensure that the user experience is not compromised. Additionally, government should take an active role in monitoring the digital platform services and enforcing these regulations, as well as providing a framework for dispute resolution between users, companies and government.
The regulation should also consider the innovative nature of digital platform services and allow room for experimentation and innovation. Additionally, the government should also provide incentives for companies to innovate and create new services. This will ensure that digital platform services remain competitive and continue to innovate in order to provide the best user experience possible.
As for Thailand, the Royal Decree on Supervision of Digital Platform Services Operation Requiring a Notification (“Royal Decree”) was announced on 23 December 2022 and will be effective 240 days after the announcement (i.e., 20 August 2023) in order to govern this matter.
Digital Platform Services shall refer to the provision of electronic platform services as a medium with data management that connects Digital Platform Service Operators (“Platform Operator”), consumers or users via a computer network in order to enable electronic transactions, whether or not a service charge is charged. Digital Platform Service under this Royal Decree excludes the Digital Platform Services that are intended to be used to offer such Platform Operator’s or its affiliates’ goods or services, regardless of whether such goods or services are offered to third parties or its affiliates.
The Platform Operator under the Royal Decree must report its operations to the Electronic Transactions Development Agency (“ETDA”) and examples of qualifications are as follows:
A natural person who operates digital platform service in Thailand and earns more than 1,800,000 THB per year or more than 50,000,000 THB if the Platform Operator is a legal entity; and
Digital platform service with average monthly users in Thailand over 5,000 users.
As the Royal Decree’s main objective is to protect consumers within Thailand, regardless of Platform Operators operating outside of Thailand, this Royal Decree determines that the digital platform services that operate outside Thailand and provide services with one of the following characteristics shall be deemed to provide services to users in Thailand, namely, (1) Thai language digital platforms, (2) digital platforms with the domain name “.th” or “.ไทย” (3) digital platforms that accept payment in Thai baht, (4) Digital platforms governed by laws of Thailand and subject to the exclusive jurisdiction of the courts of Thailand and others as specified in this Royal decree.
Platform Operators who will operate digital platform services must report the following information and evidence to ETDA:
Platform Operator’s information such as name, surname or legal entity’s name, identification number or company registration number, address, accounting period and contact channel;
Digital platform service information such as platform’s name, type of the platform, platform service channel (i.e., URL or application), value of transaction made on digital platform service (if any), etc.; and
Users’ information such as user type (i.e. person who offers goods or services to consumer through digital platform service, customers and etc.), the total number of user and the total amount for each type of user, service provider’s information (i.e. freight forwarder and warehouse service provider), the total number of service provider and the total amount for each type of service provider, information and type of complaint, along with the handling of the complaint and the settlement of such dispute, the information of representative in Thailand (for the Platform Operator who operates inside Thailand) and the Platform Operator’s consent to for ETDA to access such reported information.
The Platform Operator will be issued a registered receipt and will be able to begin operating the digital platform services once ETDA receives the aforementioned report and evidence. Any major change must be reported to ETDA within 30 days as specified in this Royal Decree. Furthermore, ETDA will provide a channel for publicizing the digital platform services’ list and status (for example, the current list of Platform Operators and those whose receipt has been revoked). Please note that the information and evidence listed above must be reported annually within 60 days from the end of the calendar year (Natural Person Platform Operator) or fiscal year (Legal Entity Platform Operator).
Platform Operators may also be required to provide users with terms and conditions of service, assess risk, prepare risk management measure, system security measure, mitigation measure and other duties as specified in the Royal Decree in order to compensate or remedy those damaged by the use of digital platform services. Plus, the ETDA shall consider announcing the rules, procedures and conditions governing the period for business termination, the transfer of digital platform services to another licensee, the management and collection of data relating to digital identity proofing and authentication and any other matters deemed appropriate in order to prevent damage, protect users and ensure that users can use the services continuously.
Platform Operators whose qualifications are required to report ETDA may continue to operate their businesses only if they report their digital platform business operations to ETDA within 90 days of the Royal Decree’s effective date. On the other hand, those who wish to discontinue such operations must notify ETDA within 90 days of the Royal Decree’s effective date as well.
There are also other details regarding the types of digital platform services, duties and various procedures which should be studied further by Platform Operators. Please note that if any law specifically governs over a specific type of digital platform services, the Platform Operator must comply with such law only if it practices in accordance with and in a manner that does not fall below the provisions of this Royal Decree.
Digital Asset plays a significant role in contributing to the development of innovative financial services which is beneficial to consumers and the economy as a whole. However, Digital Asset exposed to risks in many forms, especially in cases where consumers have an insufficient understanding of Digital Asset, and is also at risk of being used as a tool for money laundering or terrorist financing.
In order to balance between supporting innovations related to Digital Asset of the financial business groups of commercial banks for benefits and managing risks that may arise, it is an important concept for the Bank of Thailand to improve and defines relevant rules for business operation and transaction related to Digital Asset to be more flexible and to allow discreet investment and business relevant to Digital Asset under the rules and investment ratio in Digital Asset Business as required.
Therefore, the Bank of Thailand has issued the Notification of the Bank of Thailand No. SorNorSor. 6/2565 on Regulations on the Supervision of Financial Business Groups of Commercial Banks that Operate Business and Transact on Digital Asset (“Notification”) which comes to force on October 22, 2022, and applies to commercial banks, parent companies, subsidiaries, and affiliated companies of commercial banks in financial business groups according to the financial institutions business law with key principles such as: (1) to allow companies in financial business groups except commercial banks to discreetly operate a Digital Asset business under flexible regulations, and support technologies or development of financial services to increase financial system’s efficiency for the benefit of the people, business and economy; (2) to supervise and manage the risks from transactions in relation to Digital Asset; (3) to protect consumers and for consumers to receive fair services; and (4) to raise the Digital Asset business standard.
This Notification stipulates that commercial banks can transact on Digital Asset but cannot operate a Digital Asset business, and companies in financial business groups can operate businesses and transact in Digital Asset as prescribed in this Notification without contravening the key principles of this Notification and other relevant laws of Thailand and internationally such as prohibiting the use of Digital Asset as a means of payment or encouraging the general public to hold Digital Asset. However, such transactions are subject to the purpose of developing innovations to increase the efficiency and quality of providing financial business.
Furthermore, this Notification also specifies the principles of risk management governance in the following subjects:
Limiting the amount of credit, investing, creating contingent liabilities, or conducting transactions similar to lending to businesses related to digital assets (Digital Asset Related Business Limit)
Smart Contract – Tool for Facilitating Business in this modern-day business, technology has been put to be used more and more, for instance a transnational trade and supply chain, removing the bank or financial institution of the picture.
The smart contract, one of the mentioned technologies, will facilitate the business operation because the seller will be able to deliver the goods in any way and the delivery information will be the smart contract conditions to launch the product to the buyer. Input of such information is also much convenient such as scan barcode, QR code, or intact ship to the product to let the smart contract recognize the payment condition is being fulfilled.
In comparison to the typical e-commerce transaction where the buyer buying product from the available service platform that the seller displays their products and services and the platform will hold on to the payment when there is transaction until delivery of product to the buyer then the money will go to seller. This typical e-commerce transaction still has the intermediary and involving of discretion to certain level unlike the smart contract that done and execute without any intermediary. Another example, an insurance business, as the nature of its operation is the fulfilment of contract conditions to be eligible to compensation, any occurrence of the agreed event and input of data into the smart contract system will trigger the payment of compensation agreed such as insurance of delay flight, where the flight timetable is in the computer system any delay from what schedule is, will trigger the compensation procedure to the insured or beneficiary without having to go through complaint process.
Unlike the centralised system that gather all data under one centre, blockchain is a decentralised information distribution network stored in the block and shared other users that can enter the block through input of password. The network will check for any input or change of information of the block and update that to the next block and chain the new and old one together ensuring it to be connected, shared and distributed to the network. Once the information is blocked together into chain, it is irreversible.
Blockchain is a network system that is an optional approach in doing business, non-application will render to non-benefit to business or at most can be used as irreversible recording system. However, without smart contract, there could be issues of time and parties making offer and acceptance as there is no human involving.
Blockchain is an applied technology that is an additional tool to boost a business, whereas smart contract is one of blockchain functions to execute according to the agreed clauses in the contract and fulfilment of the agreed clause will render to the predicted result either transfer of money or deliver of goods according to what parties agreed. Smart contracts boost the speed, efficiency and ensure accuracy according to the terms of the contract with absolute transparency, trust and security done through blockchain network. As such, it saves both time and expense.
Under the principle of law, a contract form when there is a proposal and acceptance of parties with the intention to create legal relation and be bound by the obligation arise of the agreed expression of intention where, in some agreements, certain form of proof of such agreement is required by th law. A smart contract is an electronic contract where parties create conditions or clauses set up through coding instead of paperwork and record of such electronic contract on the blockchain network system.
The parties to contract will set forth the conditions aim to achieve in advance and upon the completion of such aim the contract will automatically complete the process of transaction without any assist from any third party. The Thailand Civil and Commercial Code did not mention of the electronic contract form but under the Electronic Transaction Act recognised the online offer and acceptance done online including binding power, rights, duties, liabilities and obligation of engaging of online contact. With its latest amendment, the contract done on the information exchange machine with a person or machine-to-machine is legitimately recognised. Therefore, the smart contract setting with no human involving in the process done on the exchanging information machine to another machine is under the electronic transaction recognition.
Under the legal interpretation, the time of contract formation take effect when the information of the offer is being input into the network system of the receiver checked through timestamp appear on the transaction. As the contract is formed online, the place of the contract is hard to identify which affect the jurisdiction of competent court. The US court introduces the ‘Long Arm Jurisdiction’ for the court to have the competency upon perpetrator resides and operates outside the state where the place of cause of action is outside of the state. If the fact appears in accordance with minimum contact principle and relative considerations and the perpetrator intents to be bound in such transaction done in the state and be benefit of such transaction within the state and regardless of whether the information in put is the information that the perpetrator want to contact or exchange with others on the internet or not, all these will be considered under the ‘Long Arm Jurisdiction’ which should be reviewed along with Stare Decisis Principle. In addition, under the UNCITRAL, it indicates the place that the sender’s workplace and the receiver’s workplace is the formation of contract place.
Therefore, the competent court will be the premises local court of the sender’s or receiver’s workplace or the domicile of the sender or receiver in which Thai law has not yet introduced any legislation on such matter