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New financial legislation

Five new acts of importance to the Thai financial market were enacted during the past year by the National Legislative Assembly of the last government. But four only took effect this year, being published in the past few months.

Financial Institutions Businesses Act

The Financial Institutions Businesses Act unifies the regulatory framework and strengthens the Bank of Thailand's powers of supervision, monitoring and enforcement. The Act defines "financial institution business" as commercial banking business, finance business and credit foncier business. The Act permits regulators to assign to the Bank supervision of specialised parastatal financial institutions, such as the Export-Import Bank of Thailand. It retains the existing ceilings on foreign ownership and foreign directors (both set at 25%), but allows for relaxation on a case-by-case basis. The Act came into force on August 3 2008, and supersedes the Commercial Banking Act, and the Act on the Operation of Finance, Securities and Credit Foncier Businesses.

The new Act poses some challenges to existing banks, in particular:

(1) New limits on related party lending and related criminal penalties;
(2) Reduced single lending limits: 5% of total capital or 25% of total outstanding loans to any single business group.

Deposit Protection Institution Act

This Act creates a Deposit Protection Agency with a limited guarantee on deposits to replace existing blanket guarantee schemes. It aims to stabilise financial institutions during a crisis and also secure the confidence and trust of depositors. Financial institutions that are members will pay insurance premiums and report to the Deposit Protection Agency. This Act came into force on August 11 2008.

Bank of Thailand Act (No. 4)

This amendment to the Bank of Thailand Act redefines the mission, responsibilities and powers of the Bank, which include issue and management of currency, managing foreign exchange and international reserves, supervising and examining financial institutions, acting as the government's banker and determining and conducting monetary policy. Under the amendment, the Bank will be able to request information from any source to facilitate its monetary policy, and will have the authority to supervise all financial products that may affect the public. This amendment came into force on March 4 2008.

Securities and Exchange Act (No. 4)

Supervision of the capital markets will change with the enactment of this amendment to the SEC (Securities Exchange Commission) Act. Under the amendment, a new capital markets supervision board will be added to the Securities Exchange Commission office, new guidelines for corporate governance will be set out to companies that issue securities to the public, and requirements for approval of initial public offerings (IPOs) from the Stock Exchange Commission will be stated, as will the requirements for operating securities companies. This amendment came into force on March 5 2008.

Committee for Supervision and Promotion of Insurance Business Operation Act

This act established an independent Insurance Supervision Office to promote the expansion of insurance to cover a wider range of individuals, businesses and property. This Act came into force on September 1 2007. There were also amendments to the Life Insurance Act and Insurance Against Loss Act, to relax ceilings on foreign ownership.

An additional act of importance to investors in real estate is the Contractual Parties' Interest Caretaking Act, which came into force on May 20 2008, and authorises banks to provide escrow accounts to protect the interest of investors in certain investment sectors.

Albert T Chandler

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