A guillotine is a device that was used extensively during the French Revolution to behead thousands of people. What, you may ask, do guillotines have to do with central banking?
One of the key projects of the Bank of Thailand (BoT) this year is a foreign-exchange regulatory guillotine -- or regulatory reform, for those who find the word guillotine too gruesome. The idea is to chop away (excuse the pun) at out-of-date, unnecessary or burdensome regulations to make it easier for companies to do business and to boost national competitiveness.
Currently, any company or individual seeking to carry out foreign-exchange transactions with a domestic bank will find the overall procedure from start to finish quite lengthy and wearisome. To begin with, supporting documents have to be prepared, stamped, signed and verified. Some of these documents, such as loan agreements, run to hundreds of pages. Imagine having to sign every single page.
These documents would then be submitted to the bank, where they will be checked to see if they comply with BoT regulations. If they are not satisfactory or if the transaction is one that is not allowed under current regulations, then the bank would have to seek approval from the central bank on behalf of the customer, a process that takes 15-30 days depending on whether or not more documents needed to be prepared.
During the first half of 2017, the central bank worked with a consulting firm specialising in working with developing/industrialised countries on regulatory, policy and sectoral reforms. The BoT set up a working committee, comprising representatives from both the public and private sectors, to go over all current foreign-exchange regulations and tackle them by addressing issues such as "Is it legal? Is it needed? Is it business-friendly?"
If the answer to any of these questions was "no", then the central bank worked to find ways to either eliminate the regulation altogether or relax some parts of it. A cost analysis was also conducted to see how much money companies could save if some of these burdensome practices were eliminated.
From now on until the end of this year, the BoT will be rolling out various steps of the reform. The list includes lessening the tedious paperwork and approval processes that companies and individuals previously had to deal with when conducting foreign-exchange transactions, and switching from paper-based submissions to more electronic and automated alternatives.
Another piece of good news is that entities can now unwind their foreign-exchange hedging transactions as well as hedge foreign-exchange exposure on behalf of their affiliate companies. This should greatly help companies reduce compliance costs and time spent on administrative work, as well as increase the efficiency of business operations and risk management.
Smaller customers such as SMEs and individuals, who may have difficulty accessing banking services, will be able to pay for goods via money transfer agents across the nation. Furthermore, individuals holding financial assets of more than 50 million baht will be eligible to invest in overseas securities on their own, without having to invest via a broker or intermediary any longer. Brokers, on the other hand, will soon receive FX licences that will allow them to quote exchange rates with their customers.
This foreign-exchange regulation reform is not intended to help Thais alone. Foreigners will also benefit from it. Foreign companies investing in Thailand or the Greater Mekong Subregion (GMS) will be able to obtain direct loans in Thai baht from banks to facilitate their funding and investment.
All of this is only the beginning. The BoT intends to extend the reforms beyond foreign-exchange regulations to other areas under its authority in the future. It is hoped that this will serve as a catalyst for larger regulatory reforms on a nationwide level across other government organisations.
As Thailand is a country with thousands of pieces of legislation and licences, tackling them all at once is no easy feat; it requires the cooperation and dedication from all relevant stakeholders. But where there is a will, there is always a way.
(Note: A complete list of relaxations under the Foreign-exchange Regulation Reform can be downloaded in PDF form from the BoT website: https://www.bot.or.th/Thai/PressandSpeeches/Press/News2560/n2760e.pdf)
Tunyathon Koonprasert is a senior analyst with the Financial Markets Operations Group at the Bank of Thailand. The views expressed in this column are the writer's own.