Thailand is investing in Fintech and increasing their cross-border collaboration on the exchange of information and knowledge.
Thailand and FinTech in the News
On 29th July 2021, The Thai Securities and Exchange Commission (SEC) and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) signed a Memorandum of Understanding (“Memorandum”) on information sharing regarding Fintech and Innovation in their respective financial markets. In essence, the Memorandum lays out a cooperation framework for the two authorities when it comes to promoting innovation in financial services. This cooperation framework provides a foundation for the SEC and CSSF to exchange information about emerging trends and developments in the financial or capital markets and regulatory issues of new technologies and innovation in the provision of financial services.
In addition, The Bank of Thailand (“BOT”) and the Bank of Indonesia launched a cross-border QR payment linkage, the first linking the retail payment system operators in both countries. The launch is part of the pilot phase which aims to connect two countries’ customers, merchants and operators and be ready for the commercial launch next year.
These collaborations signal a strong investment plan of the Thai government into financial services and the potential for the new technologies in this industry. Thailand’s population is one of the biggest users of online services with e-financial services being used by 68.1% of the population and 45.3% of internet users using a mobile payment service. This ranks Thailand as first globally for the use of banking and financial services applications. Covid has also accelerated the use of mobile banking and e-wallet platforms.
The rise of Fintech and the regulatory sandbox
Fintech, or financial technology, is growing at a rapid pace and is expected to promote financial inclusion and encourage better financial literacy.[1] Regulatory sandboxes have been created for firms and financial institutions to try out their innovations in the fintech industry with stronger supervision and some exemptions to start their project. The BOT initiated a regulatory sandbox for: financial institutions, companies within the financial business group of financial institutions, non-banks under the supervision of the BOT; fintech firms or technology firms. The BOT may exempt applicants from some regulations while the sandbox is active, and the products are being tested by real customers that are still protected. The innovative products can be tried in a real-time but limited environment however, because they are exempt from some of the limitations existing outside the sandbox, the product can enter the market faster. For example, blockchain for letters of guarantee and cross border fund transfer, cross-bank identity verification through the National Digital ID Platform to open bank accounts are being implemented under the BOT’s sandbox.
The Thai Fintech Association (“FTA”) is also a community aiming to drive the financial technology industry in Thailand who also initiated a sandbox. Their mission using fintech is to reduce the cost of financial transactions in Thailand and increase accessibility to financial products and services for Thai people. It also promotes fair competition and transparency for retailers as well as supporting Thai fintech start-ups to compete and expand to the global market.
Benefits and risks for businesses
Using FinTech has significant benefits for businesses and is a growing area for any new start-ups:
✓ There is a potential to collect and process data in real time increasing efficiency;
✓ Optimizing efficiency and improving productivity by enhancing the quality of traditional financial institutions;
✓ Allows companies to use innovative technology, increasing access to clients therefore improving transaction quality and convenience;
✓ This technology is designed to use the most advanced monetary services, thus providing better security for customers;
✓ Greater convenience in providing services but also responding to clients via their smartphones.
While businesses could greatly benefit from using FinTech, they must also be aware of the risks that exist when using it. Among those risks include:
✓ Fraud and/or misconduct, as many customers, individuals, and businesses may not be familiar with the complexity of fintech and the related platforms, there are heightened risks of loss through fraud or the misconduct of the operators on the platforms;
✓ Unreliability or vulnerability of the platforms, similar to many new technologies, they are vulnerable to hackers and any businesses either providing the services or using the services for their own customers. Thus, there is a need for adequate cybersecurity policies and competent operators;
✓ Unfair outcomes through algorithmic decision making, depending on the service provided, anti-discrimination rules must be embedded into the algorithm as to ensure fair outcomes and treatment;
✓ Lack of understanding, the increased accessibility to riskier or complex financial products by a customer who may not fully understand fintech can lead to greater risks of harm;
✓ Data privacy, whether it is through hacking or the misuse of personal data by the operators, there is a significant risk of data breaches that requires a fully implemented security policy as well as debate over whom actually owns the data.
Regulatory framework in Thailand
Currently, there are no specific types of FinTech businesses that are specifically restricted and there are multiple regulators overseeing the industry. The Ministry of Finance (“MOF”) and the BOT, the MOF and Securities and Exchange Commission (“SEC”), and the Office of Insurance Commission (“OIC”) are respectively overseeing financial services, securities, and the insurance industry when it comes to FinTech.
For example, payment systems and services are regulated under the Payment System Act B.E. 2560 (2017) (“PSA”), who impose that supervised payment systems like payment card systems are subject to a MOF licence.[2] The MOF licence allows for the provision of debit and/or credit cards and acceptance of electronic payment services. The BOT on the other hand requires registration in order to provide supervised payment services to be supervised under the BOT’s regulatory sandbox.[3] Other areas relevant to FinTech like peer-to-peer lending platforms,[4] digital assets,[5] and crowdfunding[6] (although not quite established yet) are also monitored and governed by the above regulators. The BOT has the power to impose additional requirements or relax them as necessary.
The Personal Data Protection Act B.E. 2562 (2019) will govern how businesses will process each type of personal data and the documentary support for it. The Cybersecurity Act B.E. 2562 (2019) will also be relevant depending on the sector of Fintech regarding cyberthreats. The Anti-Money Laundering Act 2542 (1999) requires the use of due diligence measures regarding the identification of customers depending on their level of risks (from low to high), this process is called “Know-your-customer”.[7] Counterterrorism and Proliferation of Weapons of Mass Destruction Financing Act B.E. 2559 (2016) may also apply in cases of persons or groups using FinTech involved in terrorist financing.
Concluding remarks
The Memorandum took effect on 7 June 2021 and this collaboration is an important one for Thailand’s 4.0 plan towards a more digital economy and for its overseas reputation with other jurisdictions. For any business wanting to invest, they must be aware of the options and the laws surrounding FinTech. Businesses considering using FinTech services must research thoroughly the products and cyber-risks before taking advantages of its benefits.
[1] ADBI Working Paper Series, “Fintech, Financial Literacy, and Consumer Saving and Borrowing: The Case of Thailand”.
[2] PSA, Chapter 2 & Chapter 3.
[3] PSA, Chapter 1 & Chapter 3.
[4] BOT Notification No. SorNorSor. 4/2562, “Re: Rules, procedures and conditions for Undertaking Peer to Peer Lending platform Business”” (“P2P Notification”) – effective 30 April 2019 and applies to non-banks
[5] Emergency Decree on Digital Asset Businesses B.E. 2561 (2018)
[6] Capital Market Supervisory Board (“CMSB”) Notification No. TorJor 21/2562 “Re: Rules Regarding Securities Offerings Through Crowdfunding Portals” (amended by CMBS Notification No. TorJor. 14/2563 (no. 2) in March 2020 (CMBS Notification as amended).
[7] Supatra Phanwichit, ‘FinTech and Causing Customers to comply wit Anti-Money Laundering Law’ (2018) PSAKU International Journal of Interdisciplinary Research; AMLA, section 16; see also Customer Due Diligence B.E. 2563 (2020).