Thailand’s Financial Regulator Lays out Plans for Payments Using Digital Assets

Thailand’s Financial Regulator Lays out Plans for Payments Using Digital Assets

by February 11, 2022

Thailand’s central bank and financial regulator have shared their views and positions on regulating the new, digital-powered financial landscape, outlining plans to issue virtual banking guidelines, rules on the use of digital assets for payments, as well as relaxing regulation on banks to boost tech investment and foster innovation.

A new consultation paper released by the Bank of Thailand (BOT) on February 01, 2022 lays out the central bank’s policy direction on virtual banking and digital assets, stressing the need to strike the right balance between promoting innovation and managing risk.

Guidelines for virtual banks will be issued by June 2022, the BOT’s assistant governor Roong Mallikamas said at a virtual briefing on February 01, 2022, and the central bank is contemplating relaxing its rule limiting commercial banking licenses to one per institution, implying that existing lenders might also be able to able to apply for a virtual banking license alongside new market players.

The BOT is also planning to allow banks to invest more than the current limit of 3% of their capital funds in fintech, except in digital assets, and is proposing to provide more players access to critical financial infrastructure, including the payment system and credit guarantee mechanism, at more reasonable costs.

These initiatives, Roong said, aim to provide greater flexibility for the traditional banking industry, all the while welcoming new innovative players, including fintech companies and virtual banks, and steering innovation.

“Competition will stimulate changes to make it better for the public and businesses,” she said.

With the introduction of virtual banking rules, Thailand will be joining other nations in Asia that have either introduced dedicated frameworks or revised existing laws to facilitate the entry of new virtual banks.

Singapore, Hong Kong and the Philippines have granted four, eight and six digital banking licenses, respectively; Indonesia issued new rules in 2021 to facilitate the introduction of digital banks through acquisitions; and Malaysia will soon grant licenses to five of the 29 applications that it received last year.

Though Thailand lacks independent virtual banks, some traditional lenders do offer virtual banking services. Singapore’s United Overseas Bank (UOB), for example, launched its digital banking offering TMRW back in March 2019.

UOB’s strategy for TMRW has been centered around providing hyper-personalized banking experiences by leveraging data and artificial intelligence (AI), and building an ecosystem of strategic partners, including fintechs, e-commerce players and telcos, to extend its reach.

So far, the strategy has paid off, allowing TMRW to sign up more than 355,000 customers since launch.

Digital asset regulation

In addition to virtual banking, Thailand is also looking to regulate the use of digital assets, especially for payments.

The BOT, the Securities and Exchange Commission (SEC) and Ministry of Finance said in a joint statement in January that digital asset business operators are expanding their businesses to payments, a development that may result in a wider adoption of digital assets as a means of payment, alongside its typical usage as an investment.

This could potentially impact financial stability and the overall economic system, the agencies said, adding that there are also risks to consumers and businesses related to price volatility, cybercrime, personal data leakage and money laundering.

“Regulators will consider exercising power in accordance with the relevant legal frameworks to limit the widespread adoption of digital assets as a means of payment for goods and services,” the statement reads. “Further regulatory guidelines will be issued for certain digital assets that are supportive of the financial system and financial innovation while not posing systemic risks.”

In December 2021, the BOT urged banks to refrain from trading digital assets, citing the risks stemming from high price volatility.

Thailand does however allow the trade and exchange of cryptocurrencies on the country’s regulated exchanges.

The announcement from the BOT, the SEC  and the Ministry of Finance comes at a time when Thailand is preparing to pilot its retail central bank digital currency (CBDC) later this year.

The pilot project will seek to evaluate the use of a CBDC in cash-like activities within a limited scale, deputy central bank director Kasidit Tansanguan said during a news conference. It will involve transactions including deposits, withdrawals and fund transfers by financial institutions, and around 10,000 users.

Over the past couple of years, cryptocurrency trading and use in Thailand have gained momentum with average daily trading surging to 4.8 billion baht from just 240 million baht, Ekniti Nitithanprapas, director general of the Revenue Department, told the Bangkok Post last month.

Trading accounts had jumped to about 2 million at the end of 2021 from just 170,000 early in the year.