The Bank of Thailand (BOT) has opened a public comment period on their consultation paper titled “Criteria for Supervising Virtual Banks” from March 19, 2024, to April 17, 2024. The consultation paper reveals that the BOT intends to apply traditional commercial bank supervisory standards to virtual banks. However, the BOT also explains that the wholly digital nature of the services offered by virtual banks necessitates additional regulatory supervision.
Additional Supervisory Criteria for Virtual Banks
- Financial business group: If a virtual bank is within the same financial business group as other financial institutions, its parent company must structure the virtual bank to be under its own sole consolidated financial business group. After the virtual bank has undergone the “restricted phase” in its initial years of operation (see below), other financial institutions within the group are prohibited from extending credit to or engaging in transactions similar to lending activities with the virtual bank.
- Shareholding structure: If the increase in the financial institution system capital is higher than the actual capital injection resulting from the bank’s shareholding structure, the BOT aims to issue an additional regulation to supervise the capital of the virtual bank and financial institution system to prevent double counting.
- Operational risk: Virtual banks must not use a trademark or logo that bears resemblance to or implies association with other financial institutions or financial institution groups.
- Governance: Virtual banks must have at least one director and chief technology officer (CTO) with at least three years of experience in IT or digital service. Additionally, the CTO must work full-time for the virtual bank and may not be an employee of another legal entity.
- Restriction on related lending and related-party transactions: Virtual banks must obtain prior unanimous approval from their boards of directors before engaging in transactions with major shareholders or businesses with a beneficial interest.
- Service channels and outsourcing: Virtual banks must provide services solely through digital channels, except when it is necessary to offer services through other channels.
- IT systems: Virtual banks must ensure that their IT systems can provide uninterrupted service. In addition, virtual banks must not share deposit systems, lending systems, internet banking services, or mobile banking services with another domestic or international financial institution.
Restricted Phase Criteria
In addition to introducing new supervisory criteria, the BOT plans to relax certain existing rules that apply during the “restricted phase” (i.e., the initial 3–5 years). This includes governance, stress testing, and business continuity plan requirements.
For more information on Thailand’s regulations pertaining to virtual banks or any other financial technology, please contact Athistha (Nop) Chitranukroh at nop.c@tilleke.com, Pornpan Wichawut at pornpan.w@tilleke.com, Rada Lamsam at rada.l@tilleke.com, or Rujaporn Paritsantik at rujaporn.p@tilleke.com.
