Publication
International arbitration report
In this edition, we focused on the Shanghai International Economic and Trade Arbitration Commission’s (SHIAC) new arbitration rules, which take effect January 1, 2024.
The Bank of Thailand regulates financial business group’s operation of digital asset business
Thailand | Publication | 1月 2023
Digital asset (“DA”) has rapidly become one of the trending investment themes during recent years, encouraging many business sectors, including the financial one, to adapt themselves in order to follow the DA business trend. It is certain that the high growth of development in innovation and digital technology, including the DA, helps develop a country’s financial services, helps lower transaction costs incurred in the use of traditional banking systems and provides investors with great investment opportunities. However, there are risks that come with such development: for example, risk to monetary system if the DA has been widely used for payment of goods and services, risk to those who hold the DA from cyber-crimes and risk from volatility of value of the DA, especially to those who do not have sufficient knowledge and understanding on the DA. In addition, the DA could also be used for money laundering or financial support for terrorism. For these reasons, the Bank of Thailand (“BOT”) considers it crucial that operation of the DA-related business be supervised and regulated in order to maintain a balance between facilitating the DA-related innovation of financial business group of commercial banks and managing risks that may arise from the DA-related business.
Accordingly, the BOT has issued the BOT’s notification no. SorNorSor. 6/2565 re regulations on supervision of financial business group of commercial banks which operate business or enter into transaction relating to digital assets (the “BOT’s Notification”), which has been in effect from 22 October 2022 and which applies to commercial banks, parent companies, subsidiaries and affiliates of commercial banks in financial business group, according to the financial institutions business law, to supervise and regulate operation of the DA-related business by financial sectors. Regulations prescribed by the BOT are mainly divided into 2 sections, i.e. scope of operation of the DA-related business and scope of DA-related transactions. The BOT also sets out in the BOT’s Notification key objectives of the BOT in supervising the DA-related business, being (1) companies in the financial business group, except commercial banks, are allowed to operate the DA-related business under supervision of the BOT; (2) the BOT is responsible for supervising and managing risks arising from the DA-related business transaction; (3) the BOT shall protect consumers so as to ensure that they receive fair service and to prevent solicitation of vulnerable consumers who do not have sufficient understanding of DA or consumers with low risk tolerance; and (4) the BOT shall raise the standard of the country’s DA business to ensure provision of proper service to consumers and to meet consumers’ expectation of the services provided by commercial banks.
Content
Scope of operation of the DA-related business
- Commercial banks are prohibited from operating DA-related business.
- Companies in a financial business group are allowed to operate the following DA-related businesses, provided that such businesses are not contrary to the above key objectives or other laws or guidelines of supervisory authorities, both domestically and internationally.
- the DA business and business of being a service provider which provides a system for offering for sale of digital tokens, according to digital asset business law or similar business in foreign countries; and
- a business having a core or main activity relating to the DA or a DA-related business which has not been regulated by any other authority.
Parent companies of those companies in a financial business group which intend to operate any of the above DA-related businesses must obtain a permission from the BOT on a case by case basis.
Scope of DA-related transactions
- Commercial banks and companies in a financial business group (collectively, the “Regulated Entities”), which are not regulated by any relevant authority, may issue or hold DA only for the purposes of development of innovation or enhancement of efficiency or quality for the provision of services in respect of financial business or any supporting business.
- Companies in a financial business group, which are regulated by any relevant authority, may issue or hold DA in accordance with the regulations prescribed by such authority.
- The Regulated Entities may only invest in investment units or trust units which have investment policies to allocate only a small portion of funds raised for an investment in DA, and may not invest in investment units or trust units in the funds or the trust funds (as the case may be), the investment policies of which are mainly to invest in DA.
- The Regulated Entities may not grant any type of loan, e.g. personal loan or credit card for a purpose of investing in DA, to any of their individual customers.
This BOT Notification also addresses regulations in respect of risk management supervision in the areas of, among others, the DA-related business investment limit and consumer protection.
DA-related business investment limit
Commercial banks are allowed to (i) invest in DA-related businesses, whether in the companies in or outside a financial business group, and whether directly or indirectly; (ii) grant a loan to, incur any obligations or liabilities for the benefit of or enter into any transaction similarly to granting of loan with companies in the financial business group which engage in the DA-related business, whether directly or indirectly through companies in the financial business group, provided that the investment or transaction amount shall not exceed 3% of their capitals.
Companies in a financial business group may invest in DA-related businesses, in companies in or outside a financial business group, provided that the investment amount shall not exceed 3% of their capital.
Consumer protection
The Regulated Entities must properly provide protection to their customers having regard to the risk level of products and the risk tolerance of customers by following guidelines set out by the BOT as follows:
- The Regulated Entities must not provide services or take any action through their available channels that would give their vulnerable customers more access to the DA.
- The Regulated Entities are prohibited from soliciting, offering for sale, suggesting or providing information related to the DA-related business, product or service to their customers.
- The Regulated Entities are prohibited from requesting from customers consent to disclose customers’ data to companies which conduct DA-related business for any marketing purpose.
Recent publications
Subscribe and stay up to date with the latest legal news, information and events . . .