More Opportunity for Offshore Investments: Collaboration with Local Intermediaries
After issuing the hearing document in November 2015, the Capital Market Supervisory Board issued the new regulation re: Providing Services to Customers for Investment in Capital Market Products Denominated in Foreign Currency (the New Regulation), which repeals and replaces the existing regulations on the same subject. The New Regulation will come into effect on 16 February 2017. This development is designed to synchronize with the less stringent approach of the Bank of Thailand which allows Thailand-based investors to have more opportunity to invest in securities or derivatives denominated in foreign currencies that were issued or offered offshore (Offshore Products).
On the one hand, old regulations provided a specific list of permissible Offshore Products that a Thai securities company can invest for and on behalf of Thai investors without any clean avenue for the Offshore Product owners to market their products to Thai investors even with collaboration with Thai intermediaries. On the other hand, the New Regulation allows local licensed business operators to market (apart from conducting roadshow) and offer any Offshore Products to Thailand-based investors so long as the type of Offshore Products to be marketed and offered is covered by the scope of their license.
Under the New Regulation, an Offshore Product owner can now collaborate (e.g. entering into a distribution agreement) with local licensed securities or derivatives business operators to offer Offshore Products to Thailand-based investors. The marketing and solicitation must be done by local licensed business operator within the scope of its license.
Under this collaboration scheme the local licensed business operator can distribute the marketing materials of the Offshore Products to investors in Thailand without any request from the investors. The business operator can also arrange for the personnel of the Offshore Products' owner to fly in to Thailand to provide explanation on its Offshore Products to investors for up to 90 days in Thailand, provided that the local licensed business operator has to register such foreign personnel with the Thai Securities and Exchange Commission (SEC) in case of providing explanation to investors other than institutional investors . Both the personnel of the Offshore Product owner and the local licensed business operator must comply with certain conditions and requirements prescribed by the New Regulation.
Please note that the Offshore Product owner cannot itself solicit Thailand-based investors to invest in Offshore Products regulated under Thai law.
What Offshore Products can be Offered to Thailand-based Investors?
This depends on the type of investor. For Thailand-based institutional investors, all type of Offshore Products can be marketed and offered to them so long as the scope of license of the local intermediary permits. For Thailand-based high net worth investors , only Offshore Products under the supervision of a Regulator can be offered, provided that such Offshore Products are not subject to a prohibition order imposed by the Regulator on trading.
For any other type of investor, Offshore Products which can be offered to them are subject to more qualifications under the New Regulation. In summary, these products must be:
- of a nature and conditions similar to capital market products that can be issued or offered in Thailand;
- under the supervision of a Regulator, and not be subject to a prohibition order imposed by a Regulator on trading; and
- either, (i) offered in the country that the Regulator resides in; (ii) for debt instruments, those issued under a debt issuance program approved by the Regulator and permitted to be offered on a private placement basis; or (iii) other tailor-made Offshore Products offered to a specific investor.
Are Thailand-based Investors Free to Invest in Offshore Products?
Although the New Regulation paves additional avenue for Thailand-based investors to invest offshore, whether the Thai investors can invest in each type of Offshore Products is another matter which must be considered from their supervisory law and exchange control regulation perspectives. For example, non-institutional and non-high net worth investors can only remit money outside Thailand to invest in the Offshore Product through a local licensed business operator or private fund.
1"Institutional investors" include (i) the Bank of Thailand; (ii) commercial banks; (iii) financial institutions established under specific law; (iv) securities companies; (v) derivatives business operators; (vi) life insurance companies; (vii) non-life insurance companies; (viii) mutual funds; (ix) private funds; (x) provident funds; (xi) the Government Pension Fund; (xii) the Social Security Fund; (xiii) companies listed on the Stock Exchange of Thailand; (xiv) juristic persons incorporated under Thai law that have assets of Baht 5 billion or more in their financial statements; or (x) any other persons that the Bank of Thailand allows to invest in offshore products, as specified by the Office of the Securities and Exchange Commission..
2"High net worth investors" include juristic persons incorporated under Thai law or natural persons with Thai residency which have outstanding investment in instruments or derivatives or deposits of Baht 100 million or more.
3"Regulator" is defined as a regulator that is a member of the International Organization of Securities Commissions, and which is a party to Signatory A of the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, a regulator that is a member of the Organization for Economic Cooperation and Development, or a regulator of a country that is a member of the ASEAN Economic Community.