You are using an outdated browser and your browsing experience will not be optimal. Please update to the latest version of Microsoft Edge, Google Chrome or Mozilla Firefox. Install Microsoft Edge

August 23, 2013

Licensing Exemptions for Foreign Securities Firms

Subscribe to Updates
Bangkok Post, Corporate Counsellor Column

The Stock Exchange of Thailand has taken many steps in recent years towards gradual liberalisation of the country’s capital market. For example, more foreign products are now permitted to be offered to Thai investors. This includes qualifying foreign exchange-traded funds, qualifying Asean Collective Investment Scheme and foreign-listed stocks with the intention of secondary listings on the SET. Exchange-control rules have also been relaxed, allowing Thai investors—both institutions and high net worth individuals—to invest in foreign capital markets.  

As a result, Thai mutual funds managed by private firms or government authorities have increasingly invested offshore, leading to numerous foreign mutual fund managers, investment banking and private equity firms focusing on Thailand as a new emerging market. Many of these entities have sought advice on the legal guidelines for approaching their prospective Thai investors.

There are several different regulated securities businesses. The licences to conduct those businesses currently are granted solely to banks and financial institutions and local securities companies, which are subject to heavy controls and compliance regulations.

Foreign securities firms generally are not permitted to conduct any securities businesses except as specifically exempted by Thailand’s Securities and Exchange Commission (SEC). For example, qualifying foreign securities firms wishing to offer services, not products, to Thai investors can enjoy exemptions for two securities businesses.

One is a discretionary investment management service or what is officially called a “private fund management service”, defined as “the management of funds of a person or group of persons who has authorised the management of investment to acquire benefit from securities, whether or not investment in other assets is also made, which management is conducted as an ordinary course of business, in consideration of a fee or other remuneration”.

According to SEC Notification Kor. Nor. 43/2549, qualifying foreign securities firms are automatically granted a general exemption to conduct this service without possessing a licence, if the following criteria are met:

  • The foreign securities firm has been licensed to conduct a securities business by a foreign regulator, which is an ordinary member of the International Organization of Securities Commissions (Iosco);
  • The foreign securities firm solicits and provides fund management services exclusively to any of the prescribed “institutional investors” in Thailand such as the GovernmentPension Fund, the Social Security Fund, insurance companies, commercial banks and securities companies, whether for their own accounts or the accounts of their institutional customers.

To qualify for the exemption, solicitations should be made only to institutional investors as defined in the notification.

Another type of securities business for which exemptions are available is investment advisory service, which means “giving advice in the normal course of business to the public whether directly or indirectly concerning the value of securities or the suitability of investing in those securities or the purchase or sale of any securities in consideration of a fee or other remuneration …”

This service is subject to SEC Notification No. Kor. Nor. 22/2544. It gives an exemption to qualifying foreign securities firms to give investment advice to Thai investors, without being licensed in Thailand, if the following criteria are met:

  • The foreign securities firm has been licensed to operate a securities business by a foreign regulator, which is an ordinary member of Iosco; and
  • The giving of advice is conducted in the following manner:

(a) In case of retail investors, the advice shall be conducted through Thai securities companies with proper licences;

(b) In case of institutional investors (same as above), the advice is specifically intended for institutional investors—a document showing the worst-case scenario of the investment in structured notes must be provided.

This essentially means qualifying foreign securities firms are free to solicit and be engaged by any Thai institutional investor to give advice on investments, provided the applicable regulatory requirements are met.

When conducting a securities business under the above exemptions, foreign securities firms should still observe conditions and restrictions imposed by other laws. For instance, the services should be provided on a cross-border basis. Otherwise, the foreign securities firm could be deemed to be “doing business in Thailand”, which would require a foreign business licence (FBL) under the Foreign Business Act.

Although it is probable an FBL could be obtained, the general post-FBL conditions such as establishing a physical branch office and bringing into Thailand an operating fund of at least 3 million baht could be an excessive burden.

Furthermore, representatives of the foreign securities firms sent to Thailand to conduct any business activities would require proper business visas from a Thai embassy or consulate and then work permits from the Employment Department.

Finally, any foreign securities firm wishing to open a representative office in Thailand for the purpose of being a contact point for its Thai investors can formally apply for a licence with the SEC, the process for which should be merely procedural.

Download Full Article
Related Professionals

Practices

Banking and Finance

Location

RELATED INSIGHTS​ 

November 3, 2022
On October 31, 2022, the Department of Trade in Myanmar’s Ministry of Commerce announced that payments for importation at the border are to be made via bank transaction. This announcement comes into force with Import/Export Newsletter No. 10/2022, dated October 31, 2022, issued by the Department of Trade, with the purpose of implementing a systematic payment system for import and export at the border, in accordance with a suggestion made by the Financial Action Task Force (FATF), an international financial watchdog. (This follows the recent news that the FATF has blacklisted Myanmar.) This requirement means that only bank transactions will be accepted for import payments in the border trade. Initially, this system will be applied to trade at the Myanmar-Thailand border only. The new requirement to pay for imports only via bank transaction states that export earnings and other types of foreign currency earnings (including salary and income remitted by Myanmar workers overseas) will be allowed to be used for imports. Importers are required to make the payments for import goods—using these earnings—via their banks. That is, Importers operating in the border trade must have foreign currency earnings received through official banking channels and must make import payments abroad through official banking channels using those earnings. In contrast to previous practices, they are unable to use other sources of income and are not able to make other payment arrangements that do not involve bank transactions. The procedures for importation at the Myanmar-Thailand border are as follows: Companies applying to the Department of Trade for an import license must produce credit advice and original bank statements that prove the receipt of export earnings or other earnings into their bank account. The Department of Trade will scrutinize the reported export earnings or other earnings, and approve the import license for an
Read More
October 31, 2022
On October 21, 2022, the Financial Action Task Force (FATF) added Myanmar to the list of high-risk jurisdictions having significant deficiencies to counter money laundering, terrorist financing, and financing of proliferation. The FATF is an international financial watchdog that aims to impede global money laundering and terrorist financing. It is a policymaking body that monitors implementation of FATF Recommendations and FATF Standards and is not binding as a supervisory authority for financial institutions. Myanmar will remain on the list of countries subject to a call for action until the country has implemented an action plan that: demonstrates an improved understanding of money laundering risks in key areas; demonstrates that onsite and offsite inspections are risk-based, and hundi (a type of informal remittance instrument for transferring money) operators are registered and supervised; demonstrates enhanced use of financial intelligence in law enforcement authorities’ investigations, and increasing operational analysis and dissemination by Myanmar’s Financial Intelligence Unit; ensures that money laundering is investigated and prosecuted in line with risks; demonstrates investigation of transnational money laundering cases with international cooperation; demonstrates an increase in the freezing, seizure, and confiscation of criminal proceeds, instrumentalities, and property of equivalent value; manages seized assets to preserve the value of seized goods until confiscation; and demonstrates implementation of targeted financial sanctions related to proliferation financing. Enhanced Customer Due Diligence Unlike other blacklisted countries, Myanmar is not applicable to countermeasures. Instead, the financial institutions of members and nonmember states of the FATF are urged to conduct “enhanced customer due diligence (CDD) measures” to mitigate the risk of money laundering, terrorist financing, and proliferation financing from Myanmar. Examples of these enhanced CDD measures to be applied to certain higher-risk activities include: Obtaining additional identifying information about the customer (available through public databases or internet sources) and regularly updating the identifying
Read More
September 27, 2022
The Bank of Thailand (BOT) and the Fiscal Policy Office have drafted a royal decree that will regulate the hire purchase and leasing of cars and motorcycles under the Financial Institution Business Act B.E. 2551 (2008). This draft royal decree, which comes at a time when the level of household debt is surging in Thailand, aims to address the rise in outstanding debts related to hire purchase and leasing of cars and motorcycles. In recent years, there has been growing concern about such financing for cars and motorcycles, as these arrangements conducted by non-banks are currently unregulated and have sparked many public complaints relating to fees and practices. Scope of Regulated Businesses By virtue of the draft royal decree, businesses carrying out hire purchase and leasing of cars and motorcycles will become regulated businesses under the Financial Institution Business Act B.E. 2551 (2008). The draft royal decree defines “hire purchase” and “leasing” as follows: “Hire purchase” refers to hire purchase of cars and motorcycles according to the Civil and Commercial Code—that is, a contract whereby an owner of a car or motorcycle hires out the vehicle to a customer, and either promises to sell it to the customer or promises that it will become the property of the customer, on the condition that the customer makes a certain number of payments. “Leasing” refers to renting of a car or motorcycle under a financial lease contract in which the lessor procures a car or motorcycle according to the lessee’s request from a manufacturer, distributor, or other party, or a car or motorcycle repossessed from another lessee, in order to allow the lessee to utilize the vehicle. The lessee is obligated to maintain and repair the leased car or motorcycle during the leasing term. However, the lessee cannot terminate the contract unilaterally before maturity. Upon
Read More
September 12, 2022
Throughout 2022, the Central Bank of Myanmar (CBM) has implemented a series of rules surrounding the compulsory conversion of foreign currency balances in the country. This began on April 3, when the CBM issued a notification directing foreign currency holders in Myanmar to convert their foreign earnings into Myanmar kyat (MMK), within one day, at the official exchange rate. Since then, the CBM has issued further clarifications and instructions for banks authorized to handle foreign currency, responded to some concerns from foreign investors by exempting certain foreign investment projects from the conversion requirement, and relaxed the currency conversion requirements for trade at the Chinese and Thai borders. The process has not been without some trial-and-error as well, with the CBM walking back some exemptions after they were enacted. Foreign investors and business owners, both in the country and abroad, have raised concerns about this centralized control of foreign currency flow and the depletion of foreign currency in Myanmar’s business community. To help readers understand the sometimes-surprising moves by the CBM over the past months, this article will summarize the key developments in the CBM’s efforts relating to foreign currency conversion. Establishment of Compulsory Exchange Requirement On April 3, 2022, the CBM issued Notification No. 12/2022 and Directive No. 4/2022 requiring nearly all individuals, companies, and other organizations in Myanmar to convert foreign-currency income received from abroad to MMK within one working day of receipt. These requirements took immediate effect for all transfers and applied retroactively to foreign currency balances already in the country. All authorized dealer (AD) banks (i.e., those licensed to exchange foreign currency) were instructed to convert foreign currency held in the foreign currency accounts of “internal residents”—which included locally registered companies, organizations, and offices; Myanmar branches of foreign companies; and individuals residing or established in Myanmar
Read More