Thailand
Financial Sector Assessment Program: Detailed Assessment of Observance of CPSS Core Principles for Systemically Important Payment Systems

This paper focuses on a detailed assessment of observance of the Committee on Payment and Settlement Systems (CPSS) core principles for systemically important payment systems in Thailand. This assessment covers the Bank of Thailand Automated High-Value Transfer Network (BAHTNET), which is a real-time gross settlement (RTGS) system. The assessment reveals that there is no explicit legislation for payment systems in Thailand. However, the legal basis for BAHTNET and payment transfers executed in this system is defined by a set of laws, regulations, and contractual arrangements.

Abstract

This paper focuses on a detailed assessment of observance of the Committee on Payment and Settlement Systems (CPSS) core principles for systemically important payment systems in Thailand. This assessment covers the Bank of Thailand Automated High-Value Transfer Network (BAHTNET), which is a real-time gross settlement (RTGS) system. The assessment reveals that there is no explicit legislation for payment systems in Thailand. However, the legal basis for BAHTNET and payment transfers executed in this system is defined by a set of laws, regulations, and contractual arrangements.

I. General

1. This assessment of the payment systems in Thailand was undertaken in the context of the International Monetary Fund (IMF) and the World Bank Financial Sector Assessment Program (FSAP) exercise for Thailand in January 2007. It covers the Bank of Thailand Automated High-Value Transfer Network (BAHTNET), which is a real-time gross settlement (RTGS) system.

2. The Bank of Thailand (BOT) conducted a comprehensive self-assessment of BAHTNET observance of the Core Principles for Systemically Important Payment Systems (CPSIPS). It was professionally done and was made available to the mission in advance. The Thailand authorities were fully cooperative and all relevant documentation to fulfil the assessment of BAHTNET was provided on time and without difficulties. The logistical support and warm hospitality of the officials of the BOT are greatly appreciated.

A. Information and Methodology

3. The methodology for the assessments was derived from the Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems of the IMF and the World Bank of August 2001. Prior to the mission, the BOT prepared the self-assessment and filled in the Questionnaire on Payment and Recommendations for Securities Settlement System (RSSS). Much of the information in the BOT self-assessment has been incorporated into this assessment. Furthermore, the assessor studied laws, articles, brochures, guidelines, data provided during the mission, and attended several presentations provided by the BOT and the different private sector institutions. Moreover, the assessor had daily and thorough discussions with the BOT, other relevant public authorities and met representatives from the private sector.

B. Institutional and Market Structure—Overview

4. The BOT operates under the BOT Act B.E. 2485 (1942), which was amended in 1998, and most of its oversight power and function in the payment systems field are broadly derived from its responsibilities for monetary policy, banking supervision and provision of payment settlement services. The Payment Systems Committee (PSC) was set up to advise the BOT in formulating a national payment system policy and defining its oversight role. The PSC is chaired by the Governor and composed of internal BOT executive staffs as well as external senior experts. According to a revised draft of the BOT Act, the PSC will be legally empowered to define and implement the BOT oversight responsibility in payment systems.

5. The Electronic Transactions Commission (ETC) has the legal power in accordance with Electronic Transactions Act B.E. 2544 (2001), to supervise and promote electronic transactions in Thailand. It is chaired by the Minister of Information and Communication Technology and composed of 12 members appointed by the cabinet. The Electronic Transactions Act B.E. 2544 (2001) does not delegate this responsibility to BOT directly. The Act’s subordinate legislation, Royal Decree Regulating the Business of Electronic Payment Services, which is going to be enacted assigned the BOT to license and supervise electronic payment business subject to the approval of the Commission.

6. The Securities and Exchange Commission (SEC) regulates the securities business in Thailand. It is empowered to regulate, supervise and develop the capital markets as well as securities firms. According to the Securities and Exchange Act B.E. 2535 (1992), the SEC is responsible to regulate the securities clearing and settlement systems. At present, the BOT does not have any formal responsibility for securities clearing and settlement activities. However, in the revised draft of the BOT Act, one of the BOT main objectives is to maintain financial stability. Therefore, the securities are the vital instruments for the central bank’s open market operation and providing liquidity in BAHTNET system. Consequently, the oversight of the RSSS will be a crucial task for the BOT in order to achieve this objective. At the same time, the SEC will, of course, continue to act as the regulator of the RSSS.

C. Payment Systems Infrastructure

7. BAHTNET is the only systemically important payment system that operates in Thailand. It was introduced as a real time gross settlement system in May 1995. The system is owned and operated by the BOT. Transactions are processed and settled continuously and irrevocably in real-time. Final settlement of obligations between BAHTNET participants is executed by entries to their settlement or current account at the books of the BOT. The bulk of large value interbank transfers is channeled through the Society for Worldwide Interbank Financial Communication (SWIFT) network and a smaller number of transactions are transmitted via the BOT web-based network.

8. BAHTNET accepts payment instructions for interbank payments and for the settlement of interbank obligations of the net clearing arrangements of the low-value payment transactions and those equities transactions. BAHTNET also settles on a real time gross basis the cash leg of the transactions in government bonds deposited at Thailand Securities Depository Co., Ltd. (TSD). There is no minimum amount for a payment to be made through BAHTNET, so that it handles time-critical low-value payments as well as large-value transfers.

9. In 2006, BAHTNET had 65 participants. On average the system settled daily 7,200 transactions and the daily average value was B 595 billion. At present, the participants in BAHTNET are 34 commercial banks, six specialized financial institutions, 14 finance companies and securities companies, TSD, two government agencies and eight internal BOT departments.

10. In addition to BAHTNET, the BOT owns and operates three low value payment systems; the Electronic Checks Clearing system (ECS), the System for Managing Automated Retail Fund Transfer (SMART) and Inter-provincial Checks Collection (B/C) system. Online Retail Funds Transfer (ORFT) is owned by National ITMX Co., Ltd. These systems are not considered systemically important by the Thailand authorities, since the volume and value of the transactions settled through these systems are still relatively low.

11. Cash transactions are still the most important payment instrument for small retail transactions and for transfers of value between individuals, which account for 9 percent of GDP. According to the preliminary data in 2006, this figure is 17 percent of the total noncash payment transactions. The use of card payments has been increasing in recent years. In 2006, the number of issued Automated Teller Machines (ATM) cards is 30 million, which is 55 percent of total saving accounts. However, the value of transactions is still modest, about 2 percent of the total electronic payments.

Table 1.

Detailed Assessment of the Observance of the Core Principles for Systemically Important Payment Systems (CPSIPS) and Central Bank Responsibilities

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Table 2.

Summary of BAHTNET Observance of CPSIPS

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Table 3.

Recommended Actions to Improve Observance of CPSIPS

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Thailand: Financial Sector Assessment Program: Detailed Assessment of Observance of CPSS Core Principles for Systemically Important Payment Systems
Author: International Monetary Fund