Thailand: Fintech 2016 Highlights and Beyond
FinTech market in Thailand received a lot of attention this year. We saw various new FinTech products being introduced and also a number of developments in the legal landscape.
Our previous Client Alerts have covered these FinTech-related issues:
- Bank of Thailand's regulatory sandbox
- Local debit card scheme
- Recent e-payment developments
- Additional e-payment requirements and regulating of e-payment businesses by special financial institutions
- Electronic know-your-customers
- Overview of the legal landscape for FinTech
In addition to the issues above, here are a few more highly interesting legal/regulatory developments that will sum up the highlights for Year 2016.
A. The SEC's Regulatory Sandbox Taking Shape
The Office of the Securities and Exchange Commission (SEC) has recently issued a consultation paper1 on regulatory sandbox for securities and derivatives businesses with the purpose to support the use of FinTech in the capital markets, such as robo advisor, algorithmic trading, algorithm-based investment advisory, etc.
This regulatory sandbox will provide a safe space for business operators to test the financial innovation in capital markets without being restricted by the regulatory hurdles under the current regime. Business operators who apply to be the regulatory sandbox participants will not need to obtain the licenses from the SEC during the designated participation period of not more than one year. The experimentory business must only involve small scale investors and comply with the conditions during the participation to ensure that the investors will get appropriate protection and limit the impact on investors andcapital markets. The regulation is expected to be issued and become effective by Q1 of 2017.
In the first phase, only the following businesses who have innovative financial services can apply for the regulatory sandbox: (1) investment advisory (2) private fund management (3) derivatives agency (4) derivatives dealing (5) derivatives advisory, and (6) derivatives fund management.
The SEC's Regulatory Sandbox is hoped to be a valuable addition into Thailand's FinTech ecosystem, in addition to the BOT's Regulatory Sandbox Guidelines which became effective on 21 December 2016. The key concepts of the BOT's Regulatory Sandbox Guidelines remain the same as covered in our previous client alert on the draft guidelines with some changes, which you can reach out to us for more information.
B. Independent Investment Advisor with Relaxed Requirements
The SEC issued another consultation paper2 on independent investment advisor and LBDU3. Recently, we started to see FinTech innovation in the investment advisory area such as the use of algorithm to generate research and investment advice. With the new regulations in the future, the SEC hopes to support independent investment advisors so that investors have better access to information and advice for their investments. The regulations are expected to be issued and become effective by Q1 of 2017.
This consultation paper discussed the proposed criteria for regulating "general advice"4, "specific advice"5, "fund units sale", and "low impact case". There are also some relaxed criteria for instance, simplified capital requirement of not less than THB 100,000 and exemption of required qualifications for certain personnel. An interesting new concept is that the SEC will allow global players to provide "general advice" to mass market without having to obtain an Investment Advisory (IA) or a Derivatives Advisory (DA) license. These global players must have established presence in advance markets and register with the SEC at least 30 days before providing their services in Thailand. Providing investment advice to limited investors (low impact) can also be done without IA or DA license, such as to institutional investors, companies within the same business group, or to not more than 15 investors in total in any 12-month period.
C. P2P Lending Almost a Reality
Peer-to-Peer (P2P) Lending is a new alternative lending channel for the borrowers to access funds and also a new alternative investment for investors who can enter into transactions directly via P2P lending platforms. The Bank of Thailand (BOT) issued a consultation paper on P2P Lending6 after several rounds of discussions with the industry and interested platform operators. Some interesting points to note are:
- P2P platform operator must obtain an approval from the BOT and only "matchmaker" business model is recognized7
- both "financial institutions" and "non-financial institutions" can operate as a P2P lending platform with certain different qualifications and requirements
- borrowers can be individuals or juristic persons and types of credits include retail credit such as credit for consumption purpose, retail credit for occupation/business, and credit with security or with specific projects
- investors can be retail investors (with maximum annual investment of THB 500,000), high net worth investors, institutional investors, private equity, venture capital, and qualified investors8
- interest rates chargeable by the investors depend on the relevant law applicable to each investor type. In the case where there are no specific law that allows a specific interest rate for a type of investor, the general maximum interest rate of 15% per annum is applicable.
D. Credit Information More Open
The Credit Information Committee opened a hearing on the draft Amendment to the Credit Information Business Act (also known as "credit bureau" law). According to the current law, only certain types of business operators can become members of the credit bureau. The draft amendment will add any business operator whose business involves financing in the normal course of business, as designated by the Committee, as a qualified member. The amended law will allow intermediaries like P2P lending platform operators to qualify for a membership and therefore benefit from the credit information shared among members while also contributing their information to the ecosystem.
E. Investment Promotion for FinTech
The Board of Investment9 (BOI) added digital services as one of the eligible activities for investment promotion. Digital services include, for example, FinTech, MedTech, AgriTech, etc. The FinTech business operators who possess the qualifications and conditions as set out in the BOI Announcement can apply for the investment promotion to receive type A3 incentives, which include, among others, 5 years corporate income tax exemption for up to 100% of investment amount (unless an unlimited tax benefit is granted). FinTech projects must, however, first gain an approval from the Ministry of Information and Communication Technology (now the Ministry of Digital Economy and Society) before applying for the investment promotion.
With so many other interesting market and legal developments in the pipeline, such as the National e-Payment Master Plan projects implementation, the draft law on payment systems, many other draft laws under the Digital Economy Plan (e.g. data protection law), 2017 will be another active year for FinTech.
For more comprehensive information, please contact our team at Baker McKenzie.
1 The Consultation Paper No. OrNorPhor. 55/2559 Re: Regulatory Sandbox for Securities and Derivatives Businesses was published on 8 December 2016 and was open for comments until 22 December 2016.
2 The Consultation Paper No. OrNorPhor. 56/2559 Re: Independent Investment Advisor / LBDU was published on 9 December 2016 and is open for comments until 9 January 2017.
3 Limited Broker, Dealer and Underwriter.
4 General advice means advice on specific securities without considering of the investment objectives, financial statuses or preferences of the investors.
5 Specific advice means advice on specific securities taken into account the investment objectives, financial statuses or preferences of each investor.
6 The Consultation Paper Re: Regulatory Framework for Peer-to-Peer Lending via Electronic System or Network was published on 30 September 2016 and was open for comments until 15 October 2016.
7 In the initial stage, other business models such as "credit lender" model or "notary model" are not covered under this new regulation and must be considered under other relevant laws and regulations.
8 High-net-worth investors, institutional investors, private equity, venture capital, and qualified investors have similar definitions as in the SEC regulations (except that it does not include equity crowdfunding platforms).
9 BOI Announcement No. Sor. 1/2559 Re: Additional Amendments of Eligible Activities for Investment Promotion In accordance with the BOI Announcement No. 2/2557.