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After 10 years of waiting for legislative endorsement, Thailand will welcome the Financial Institutions Businesses Act (FIBA) on Sunday. Now, we have a law that encompasses more complex business transactions of financial institutions and, more importantly, eliminates various drawbacks of previous financial institution laws in use since 1962.

Among several important aspects of the FIBA, which was enacted in February, five core objectives have been emphasised. They are designed to enhance prudential measures, increase the efficiency of the financial system, encourage integrity and good governance, promote fairness and maintain a sound macro-prudential environment.

The ultimate goals are to strengthen financial institution stability, prevent financial crises and enhance competitiveness.

Although most of the prudential regulations under the FIBA are not entirely new for financial institutions, consolidated supervision regulations, with legal enforcement, will be introduced for the first time. They are expected to correct numerous flaws of previous laws.

Under the new consolidated supervision regulations, financial institutions will be supervised collectively. This means that they have to identify their subsidiaries and affiliated companies, such as credit card or leasing companies, as well as seek approval for their group's structure from the Bank of Thailand.

Supervision from a group-wide perspective will let regulators fully and legally assess group risk exposures that may not be completely captured by supervision on a stand-alone basis.

Key regulations include capital-adequacy requirements, intra-group transactions and large exposures.

This new mode of supervision will enhance prudence in examination to reflect the financial positions of financial groups more accurately.

The FIBA has been made more responsive to more complex financial transactions, a more rapidly changing financial environment and more sophisticated financial instruments, such as structured products and credit derivatives.

Potential financial crises will also be more effectively prevented through prudential measures that focus on the responsibilities of boards of directors and senior management as well as on risk-management functions.

Financial institutions with high-risk profiles may be required to set aside extra capital reserves to cushion against their risk exposures.

Early warning systems have also been developed to promptly signal regulators about the status of a financial institution.

The central bank can now consider and approve the composition of directors as well as the checks-and-balances systems of financial institutions. The directors will also be required to participate actively, exercise due care and comply with applicable laws and regulations.

The FIBA will also improve consumer protection through rules focusing on information disclosure, especially for interest rates and fees. Sufficient information and market discipline will be powerful tools for consumers to use in dealing with financial institutions.

Overall, this new law will increase the safety and soundness of financial institutions and the financial system as a whole. This is vital because a strong and efficient financial sector is a crucial force for advancing economic development and people's welfare.