Five pieces of crucial financial legislation

These are the most important financial regulations since 11 were passed after the 1997 economic crisis, which led to wide debate throughout the business sector and the government.

First, the Bank of Thailand Act stipulates the mission, role and authority of the BOT, including the issue and management of bank notes, managing foreign exchange, managing international reserves, supervising and examining financial institutions, serving as the government's banker and determining and conducting monetary policy.

Moreover, this law stipulates the structure of BOT operations and how the governor and board are appointed and removed. The Act empowers the BOT to request information from anyone, in order to conduct monetary policy. The central bank will also have the authority to supervise and inspect any financial products that may affect the public.

Second, the Financial Institutions Business Act consolidates current banking and finance laws. The BOT will be the sole party supervising and inspecting financial institutions. In addition, the Act empowers the BOT to submit royal decrees, in order to apply the law to any business operators that give credit, accept deposits or conduct any financial business not already covered in the legislation.

Moreover, the Act gives the central bank the power to determine shareholding conditions and set qualifications for directors and executives of financial institutions. The BOT will be responsible for setting the Bank of International Settlements ratio (capital-to-risky-asset ratio), the types of business transactions that financial institutions are allowed to conduct and the conditions for lending and investing an institution's capital. Finally, the Act empowers the BOT to take action against any financial institution, in order resolve any problem an institution may encounter.

Third, the Deposit Protection Act sets out a limited deposit-insurance scheme that guarantees a certain level of deposits to depositors. This law will ensure the confidence and trust of depositors while maintaining the stability of financial institutions, particularly during a financial crisis. Financial institutions that are members of this scheme must pay insurance premiums and report to the Deposit Protection Agency, which will be created under this law.

Fourth, the Securities Exchange Act changes the structure of Thailand's capital-market supervision. It includes the establishment of a capital-market supervisory board in addition to the board and office of the Securities and Exchange Commission. It also stipulates shareholders' rights and conditions for corporate governance of companies that issue securities to the public, including the accountability of directors, executives and management.

It also states the requirements for gaining SEC approval for initial public offerings. Moreover, the Act describes the conditions required for securities companies, the Stock Exchange of Thailand and other securities-dealing centres to operate.

Fifth, the Supervision and Promotion of Insurance Businesses Act governs supervision of insurance businesses. It also requires the establishment of an insurance-supervision office as an independent agency. This will promote the expansion of insurance policies.

In conclusion, any analysis of these laws should be made concurrently, because they have two important interconnections.

First, the BOT is given authority and independence to supervise and inspect a range of financial institutions that together account for 80 per cent of the assets held by financial institutions, through the first three Acts above. Economists who believe in the independence of the central bank view this in a positive light.

Second, the powers, operational structures and types of governance agencies responsible for implementing the Financial Institution Business, Securities Exchange and the Supervision and Promotion of Insurance Businesses Acts are quite similar. For this reason, one should consider the five Acts in tandem to gauge their effects on the ever-changing landscape of the financial, capital and insurance markets.

CHODECHAI SUWANAPORN is director of the Fiscal Policy Office's financial system section.