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11 July, 2018
Securities companies have been prohibited from buying, selling, or exchanging foreign currency directly with its clients as they were not permitted to hold foreign exchange licenses. This is despite the fact that securities companies can act as investment agents for Thai clients for making investment in foreign currency-denominated securities and derivatives ("FCY Products"). With the growing popularity of investment in foreign currency instruments, the Bank of Thailand (the "BOT") recently issued a new regulation which will allow securities companies to apply for foreign exchange licenses with a limited scope to buy, sell, or exchange foreign currency for its clients for investment in FCY Products (a "Limited FX License").
I. Who is eligible for the Limited FX License?
To obtain the Limited FX License, the company must:
- be a securities brokerage company holding a type A securities license;1
- have been a broker trading securities on the Stock Exchange of Thailand for at least three consecutive years prior to the date of submitting the license application;
- have never had a foreign exchange-related license (if any)revoked; and
- have never been adjudicated bankrupt, or had a receivership order issued against it.
Given these qualifications, not all securities broker companies will benefit. Newly established companies and those which do not provide brokerage services for Thai domestic stocks will not benefit from this regulation.
II. Scope of permissible FX businesses
A securities company which obtains a Limited FX License can buy, sell or exchange foreign currency with its client under certain conditions, such as the following: (i) the FX conversion is made relating to or for investment in the FCY Products of clients for which the license holder acts as an investment agent (e.g. asking for a foreign investment allotment (FIA) from the Securities and Exchange Commission on the clients' behalf); (ii) the settlement date of the FX conversion is no later than T + 2 business days; (iii) the foreign currency amount sold or exchanged for the clients reaches the maximum FIA quota allotted to each client; and (iv) the FX conversion by the license holder is through a separate foreign currency deposit account for the FX business of the license holder only; (v) the exchange rate to be used must be close to the average exchange rate applied by banks in Thailand, as announced by the BOT; and (vi) the daily net buying position of the license holder cannot exceed USD 5 million, and the daily net selling position cannot exceed zero.
III.Consideration period
An application for the Limited FX License and supporting documents2 must besubmitted to the Minister of the Ministry of Finance through the BOT. The maximum consideration period for the license application is 60 business days as from the date the completed and correct application package is submitted to the BOT.
IV.What are the benefits to Thai investors?
Please click on the image to enlarge.
The diagram above shows the differences of investment flow between securities companies with and without ta Limited FX License. As mentioned above, the new regulation allows the Securities company which obtains the Limited FX License to make FX conversion for the clients for investment in FCY Products both onshore and offshore. The diagram above intends to illustrate the investment flow for the offshore investment. In summary, this new regulation allows a securities company with a Limited FX License to act as a one-stop service provider for Thai clients to invest in FCY Products.
V. Post-licensing obligations
The obligations for securities company holding the Limited FX License are to:
- retain supporting documents relating to foreign exchange transactions for a period of five years for BOT inspections; and
- submit a report to the BOT in accordance with the forms and procedures prescribed on the BOT's website, or through BOT's electronic platform.
VI. Validity period of the Limited FX License
The Limited FX License is valid for a period of one year, and will be automatically renewed on a yearly basis, unless the Minister of the Ministry of Finance informs the company otherwise in writing.
We will monitor the development of rules and regulations which will benefit business operators, and continue to provide updates.
1 A license for (1) securities brokerage; (2) securities dealing; (3) securities underwriting; (4) investment advisory service; (5) mutual fund management; (6) private fund management; (7) securities borrowing and lending; and (8) venture capital management
2 For example, a certified copy of the securities license and a certified copy of the affidavit obtained from the Ministry of Commerce no more than six months prior to application submission date.
For further information, please contact:
Benja Supannakul, Partner, Baker & McKenzie
benja.supannakul@bakermckenzie.com
