Introduction
The Thai Cabinet has recently approved the draft Financial Hub Act (the “Act”), with the aim to establish Thailand as a global hub for financial industries, attracting foreign investment and enhancing employment opportunities for the Thai labour force.
The Act introduces a new licensing regime for targeted financial-related businesses and provides operational incentives to licensed operators under the supervision of the Regulation and Promotion of Financial Hub Operations Committee (the “Committee”), a dedicated regulatory body to be established under the Ministry of Finance.
This article highlights key elements of the Act and potential challenges surrounding the legislation and its impact on both Thai operators and foreign investors.
A. Key Elements
The Act establishes a comprehensive licensing regime for businesses operating in the targeted businesses (“Target Business”), including;
(i) commercial banking;
(ii) payment system;
(iii) securities;
(iv) futures contract;
(v) digital asset;
(vi) insurance and reinsurance brokerage;
(vii) other related or supportive financial activities, as specified by the Committee.
Operators in the Target Businesses may apply for a licence (the “Licence”) with the Committee. Applicants must meet certain eligibility criteria, including being a company incorporated in Thailand or a branch of a foreign entity, operating in one or more Target Business and employing Thai workers at a prescribed ratio.
1. Incentives
To incentivise foreign investments, the Act provides exemptions from compliance with several existing laws, including:
(i) laws relating to financial institutions, payment systems, securities and exchange, future contracts, digital assets, life insurance and non-life insurance;
(ii) the Foreign Business Act B.E. 2542 (1999);
(iii) foreign ownership limit under the Condominium Act B.E. 2522 (1979);
(iv) Section 67 of the Public Limited Companies Act B.E. 2535 (1992), which requires that a public company shall have a minimum of five directors of which one-half shall reside in Thailand; and
(v) Section 1105 of the Civil and Commercial Code, which requires at least 25 per cent paid-up capital by shareholders.
In addition, licensed operators may enjoy other incentives, including ease of immigration processes and recognition as non-residents under the exchange control regulations, allowing greater flexibility for cross-border operations.
2. Compliance
Whilst an operator will be restricted from offering, soliciting and advertising its services exclusively to overseas customers, it may be exempt from such restrictions in the following circumstances:
(i) offering of brokerage services for overseas assets, which are offered to customers of licensed Thai operators under the regulations relating to securities and exchange, futures contracts or digital assets; and
(ii) soliciting, advertising or providing services in the manner prescribed by the Office of Financial Hub Committee (the “Office”), the Bank of Thailand (the “BOT”), the Securities and Exchange Commission (the “SEC”) or the Office of Insurance Commission (the “OIC”).
In addition, the Office may, on the advice given by the BOT, SEC or OIC, impose other compliance measures or conditions in response to incidents which may potentially impact the economy, financial systems or public interest of Thailand.
B. Potential Challenges
As the financial sector has been regarded as one of the most heavily regulated industries in Thailand, the above exemptions and incentives, which aim to encourage foreign investments, especially multi-financial players, may affect the competitiveness of Thai operators in the long run. Not only is there the lack of clarity surrounding the criteria and acceptable solicitation practices or range of services that the operators can offer to Thai customers which raises concerns on unfair competition for local players and the potential impact on national interests, but the absence of clear regulatory parameters may also impact the confidence of potential investors.
In addition, the Act has yet to fully address any potential tax incentives, which may result in Thailand being less attractive in comparison to neighbouring countries with more well-established infrastructure and transparent tax regimes.
C. Final Remarks
The Act reflects Thailand’s ambition to transform into a global financial center, attract global capital and talent and create opportunities for the Thai workforce. Despite such promising framework, the success of the Act will depend largely on the clarity of subsequent drafts or supplementary regulations, together with the effective coordination between government agencies to ensure alignment with existing regulatory systems.
As Thailand moves forward with this legislation plan, stakeholders will need to closely monitor the development of the Act that may resolve the outstanding uncertainties. We will continue to provide updates as new information becomes available.
This document is solely intended to provide a general update on recent developments in Thailand’s legislation and is not purported to provide a legal opinion, or legal advice to any person. Stakeholders are advised to seek professional legal counsel for specific legal guidance related to the above issue.