Fund management regulation

Regulatory framework and authorities

How is fund management regulated in your jurisdiction? Which authorities have primary responsibility for regulating funds, fund managers and those marketing funds?

Thailand’s Securities and Exchange Commission (SEC) and the Capital Market Supervisory Board (CMSB), a supervisory authority within the SEC organisational structure, are the government agencies that have the authority to regulate fund management in Thailand. The SEC and the CMSB together have primary responsibility for regulating funds and fund managers. The SEC’s organisational structure extends to the Office of the Securities and Exchange Commission (the Office of the SEC). The functions of the Office of the SEC are to supervise securities business on a day-to-day basis, including that of fund management.

Another key regulator of fund management is the Bank of Thailand (BOT), Thailand’s central bank. Among its many financial oversight responsibilities, the BOT regulates investment by Thai investors in financial products or securities, including offshore funds issued by foreign entities or which originated in certain foreign markets, involving the outflows of Thai baht and foreign currencies to pay for the purchase of foreign-issued securities or investment units.

Fund administration

Is fund administration regulated in your jurisdiction?

Fund administration, including services provided to funds that are technically not management services but more of an administrative nature, such as book-keeping, preparing reports and trade settlements, is regulated in Thailand by the SEC pursuant to section 12 of the SEC Act and the CMSB Notification No. TorThor 35/2556.

Authorisation

What is the authorisation or licensing process for funds? What are the key requirements that apply to managers and operators of investment funds in your jurisdiction?

Generally, the investment unit of a mutual fund or private fund and its management are subject to the approval of the SEC and is under SEC supervision unless otherwise exempted. Also, generally in Thailand, the offer or sale of investment units, whether as a mutual fund or a private fund, does not have a private placement regime and therefore requires a securities licence to operate fund management unless otherwise exempted.

There are seven different licences for undertaking securities business in Thailand. The main securities business licences are Securities Business Licence Types A, B, C and D. The Securities Business Type A Licence is the most comprehensive, covering various categories of securities business, including fund management. The Type C Licence is a boutique asset management licence.

Pursuant to section 117 of the SEC Act, a securities company may establish and manage a mutual fund upon approval by the office of the SEC in accordance with the rules, conditions and procedures issued by the CMSB. Sections 118 to 132 of the SEC Act cover the business of mutual fund management, whereas sections 133 to 140 cover private fund management.

Other than the relevant provisions of the SEC Act, the key SEC notification that regulates the investment activities of retail mutual funds is the CMSB Notification TorNor 87/2558. TorNor 87/2558 provides the general guidelines and rules on investment, whereas the specific rules and details can be founded in the appendices to TorNor 87/2558.

Territorial scope of regulation

What is the territorial scope of fund regulation? Can an overseas manager perform management activities or provide services to clients in your jurisdiction without authorisation?

In general, an overseas fund manager cannot provide securities business services to clients in Thailand without licence or authorisation.

Broadly speaking, there are three options for a foreign securities company to engage in business in Thailand:

  1. apply for SEC licences (mutual fund or private fund management, or both);
  2. solicit and offer the foreign funds for sale through an intermediary such as a Thai SEC-licensed securities company or wealth management/private bankers; and
  3. solicit and offer the foreign funds for sale directly to qualified Thai investors.

Option (i) would require the foreign fund managers to establish a legal entity as a licensed local subsidiary in Thailand.

Under option (ii), the foreign securities company is not required to apply for SEC licences as it can conduct business in Thailand, including the offer for sale of foreign securities and investment units, through the licensed local partner.

Acquisitions

Is the acquisition of a controlling or non-controlling stake in a fund manager in your jurisdiction subject to prior authorisation by the regulator?

The acquisition of a controlling or non-controlling stake in a fund manager or asset management company (AMC) in Thailand is not subject to prior authorisation by the SEC.

Restrictions on compensation and profit sharing

Are there any regulatory restrictions on the structuring of the fund manager’s compensation and profit-sharing arrangements?

CMSB Notification No. TorThor 35/2556 (2014) provides the standard conduct of business for securities companies and derivative intermediaries. The notification, however, only provides a general guideline that, as a matter of standard conduct, the securities company or AMC shall avoid ‘receiving or rewarding remunerative or any other benefits, whether in form of cash, things or services, more than those that would be received or rewarded in normal commercial practice’.

Fund marketing

Authorisation

Does the marketing of investment funds in your jurisdiction require authorisation?

All marketing activities of investment funds in Thailand must be specifically authorised by the Office of the SEC in accordance with section 117 of the SEC Act and the applicable rules, conditions and procedures set out in the CMSB notifications.

What marketing activities require authorisation?

See question 7.

Territorial scope and restrictions

What is the territorial scope of your regulation? May an overseas entity perform fund marketing activities in your jurisdiction without authorisation?

The territorial scope of the SEC and its regulatory power encompasses all investment fund activities in Thailand by Thai securities companies and foreign or overseas fund managers or foreign AMCs. An overseas entity may not engage in fund marketing activities in Thailand without a licence unless the solicitation or marketing of foreign funds is made thorough a licensed local intermediary. In addition, as an exception to the aforementioned prohibition, a foreign fund manager is able to solicit and market to institutional investors as specified and subject to the conditions in SEC Notification No. KorNor 43/2549 (2006) to provide fund management services. Only in the foregoing situation would a foreign securities company be allowed to perform fund marketing activities in Thailand without having to apply for or obtain a securities licence.

If a local entity must be involved in the fund marketing process, how is this rule satisfied in practice?

As mentioned in question 9, a foreign fund manager may solicit and offer foreign funds to Thai investors though a licensed local intermediary. This arrangement is similar to the ‘chaperone’ arrangement, although the chaperone concept is not explicitly recognised in SEC Act or Office of the SEC rules or regulations.

Commission payments

What restrictions are there on intermediaries earning commission payments in relation to their marketing activities in your jurisdiction?

See question 6.

Retail funds

Available vehicles

What are the main legal vehicles used to set up a retail fund? How are they formed?

Pursuant to section 119 of the SEC Act, retail mutual funds are formed by way of the written commitment between the licensed securities company and the unitholders and between the appointed mutual fund supervisor and the securities company.

In this regard, a securities company (an asset management company) must file an application to the SEC to establish a retail mutual fund together with project details, a draft obligation between unitholders and the AMC, a draft contract on the appointment of trustees and a draft prospectus. Once approved, a retail mutual fund has the status of a juristic person separate from the AMC.

There are two ways to apply for SEC approval of a retail fund:

  • normal approval; or
  • auto-approval.

It should be noted that only ‘uncomplicated’ retail mutual funds can apply for auto-approval.

Laws and regulations

What are the key laws and other sets of rules that govern retail funds?

The key laws are the relevant provisions of the SEC Act and the rules and regulations issued by the CMSB and the Office of the SEC.

There is no self-regulatory scheme per se, although there are certain guidelines issued by the office of the SEC on the operating systems of fund management businesses, which cover, among other things, the roles and responsibilities of high-level management, investment management systems, back office supporting systems, compliance systems and internal control systems.

The SEC regulatory principles that govern retail funds in Thailand are:

  • the AMC shall manage the mutual fund with integrity, care and diligence in the best interests of unitholders, with professional knowledge and competence;
  • when investment units are offered for sale to the public, the selling agents must distribute a simplified prospectus using clear language to interested investors; and
  • the AMC must strictly comply with the governing regulations and the investment policy specified in the mutual fund project and prospectus.
Authorisation

Must retail funds be authorised or licensed to be established or marketed in your jurisdiction?

Retail mutual funds must be authorised and licensed by the Office of the SEC to be established and marketed in Thailand. Section 117 of the SEC Act provides that a mutual fund must be approved by the Office of the SEC in accordance with the applicable rules, conditions and procedures specified in the CMSB notifications.

Marketing

Who can market retail funds? To whom can they be marketed?

Securities companies licensed by the SEC to establish and manage retail mutual funds can market retail funds to potential retail customers and the general public.

Managers and operators

Are there any special requirements that apply to managers or operators of retail funds?

The fund manager assigned by the AMC must hold a licence issued by the SEC. The fund manager’s qualifications must include having satisfied professional standards set by the Association of Investment Management Companies. In addition, the fund manager is required to have passed CFI or CISA level 3 or 1 (if level 1, then the fund manager must have work experience in securities, investment or risk management relating to securities investment or analysis for not less than two years within five years prior to the application date).

Investment and borrowing restrictions

What are the investment and borrowing restrictions on retail funds?

SEC Notification TorNor 87/2558, together with the applicable appendices and the SEC manuals, stipulates the types or classes of investable securities or assets that may be used by retail mutual funds. Generally, the investable assets (restricted to retail funds) must meet the following requirements:

  • there must be no conditions or stipulations causing investors to assume obligations that exceed the value of the investment;
  • the securities must be transferable (and where there exists a feature of non-transferability, the right of claim can be assigned); and
  • information on such securities can be accessed on a consistent basis and the fair value information must also be accessible.

In addition to the above general investment criteria, Appendix 3 of TorNor 87/2558 also provides for special rules on specific types or classes of securities for retail funds, including:

  • Collective Investment Scheme (CIS);
  • infrastructure funds and property funds, or real estate investment trusts; and
  • derivatives.

With regard to derivatives, there are certain conditions for investable derivatives (eg, index derivatives, OTC derivatives and credit derivatives). The investment limits applicable to retail mutual funds are provided in detail in Appendix 4 - retail MF-PF. These include the following investment limits:

  • single entity limit;
  • group limit;
  • product limit; and
  • concentration limit.
Tax treatment

What is the tax treatment of retail funds? Are exemptions available?

Retail funds are a separate legal entity from the AMC and are currently not regarded as taxable entities under the Thai Revenue Code. Therefore, any benefits that retail funds receive from their business (eg, dividends, capital gains or interest), are exempted from income tax.

However, in August 2018, the Cabinet approved a draft amendment of the Thai Revenue Code, which specifies that mutual funds will be regarded as taxable entities under the Thai Revenue Code. Accordingly, once the draft amendment becomes effective, any income from dividends, capital gains and interest that the retail funds receive will be subject to corporate income tax.

Asset protection

Must the portfolio of assets of a retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

Pursuant to section 125 of the SEC Act, the portfolio of assets of a retail fund managed by a licensed securities company must be deposited into the custody of the mutual fund supervisor (the fund supervisor). Section 127 of the SEC Act further stipulates that, to safeguard the fund’s assets, the assets of the retail mutual fund (which are accepted into the custody of the fund supervisor) must be separated from other assets. Finally, the fund supervisor must ensure the disposition of the mutual fund assets in accordance with the mutual fund project.

Governance

What are the main governance requirements for a retail fund formed in your jurisdiction?

As part of the management of a retail mutual fund by the AMC, the following main governance requirements must be observed:

  • management of the retail mutual fund strictly in accordance with the approved mutual fund project;
  • deposit of the mutual fund’s assets to the fund supervisor;
  • preparation of accounts of investments;
  • preparation of investment reports for the fund supervisor;
  • preparation and maintenance of a unitholder registry in accordance with the rules and procedures specified in the Office of the SEC notification with the CMSB’S approval; and
  • arrangement for the collection of return on investments of the fund assets and depositing them into the custody of the fund supervisor.
Reporting

What are the periodic reporting requirements for retail funds?

The AMC is required to regularly evaluate the performance of funds and disclose the operational results and other material information at each particular period to investors and the general public.

In addition, pursuant to clause 12 of SEC Notification No. KorNor. 30/2547, the aforementioned requirement to disclose extends the fund manager’s duty to disclose information that would sufficiently allow investors and general public to uninterruptedly obtain such information at all times as appropriate to the circumstances.

Issue, transfer and redemption of interests

Can the manager or operator place any restrictions on the issue, transfer and redemption of interests in retail funds?

The fund manager or operator may not place any restrictions on the issue, transfer and redemption of interests in retail funds.

Non-retail pooled funds

Available vehicles

What are the main legal vehicles used to set up a non-retail fund? How are they formed?

Pursuant to section 134 of the SEC Act, the main legal vehicle used to set up a non-retail mutual fund is affected by way of a written agreement between the AMC and a person or a group of persons that has authorised the AMC to manage the non-retail pooled fund (called a private fund in Thailand) pursuant to which the AMC is required to manage the fund in accordance with the rules, conditions and procedures specified in the CMSB notification, including appointing a custodian approved by the Office of the SEC.

Laws and regulations

What are the key laws and other sets of rules that govern non-retail funds?

In Thailand non-retail private funds are pooled funds collected from no more than 35 investors, managed by a licensed AMC and investing in securities in accordance with the agreements made with the private investors. A non-retail private fund is not a juristic person, unlike a retail mutual fund.

The key laws are the relevant provisions of the SEC Act and the rules and regulations issued by the CMSB and the Office of the SEC. Generally, the investment of a non-retail fund’s assets is subject to SEC approval unless otherwise exempted.

It should be noted that SEC supervision and regulation of non-retail private funds is considerably less strict than those of retail funds, whether in terms of types of investable assets or investment limits. Generally, a licensed private fund manager can invest in almost any type of assets as long as the investment does not deviate from the fund’s investment policy as stipulated in the fund management agreement.

Authorisation

Must non-retail funds be authorised or licensed to be established or marketed in your jurisdiction?

Non-retail funds (or private funds) must be approved and authorised by the Office of the SEC to be established and marketed in Thailand.

It should be noted that, pursuant to SEC Notification KorNor 43/2549 (2008), a foreign securities company may solicit certain institutional investors to provide fund management services without first having obtained an SEC licence. A foreign securities company is defined as ‘any juristic person which is granted permission to undertake securities business by a foreign regulator which is an ordinary member of the International Organization of Securities Commissions’.

Marketing

Who can market non-retail funds? To whom can they be marketed?

A securities company licensed by the SEC to establish and manage non-retail private funds can market non-retail funds. Non-retail private funds can be marketed to certain qualified investors, such as institutional investors, ultra-high net worth (UHNW) individuals and high net worth (HNW) individuals (as defined in the SEC notifications and BOT regulations).

Ownership restrictions

Do investor-protection rules restrict ownership in non-retail funds to certain classes of investor?

Ownership of non-retail funds is restricted to qualified Thai investors in accordance with the definitions of qualified investors, including accredited investors (AI), institutional investors, HNW investors and UHNW investors.

Managers and operators

Are there any special requirements that apply to managers or operators of non-retail funds?

Supervision of non-retail private funds is considerably more relaxed than that of retail mutual funds. Therefore, there are no special requirements that apply to managers or operators of non-retail funds (other than that the non-retail private fund’s assets must be segregated from the AMC’s proprietary portfolio).

Tax treatment

What is the tax treatment of non-retail funds? Are any exemptions available?

As non-retail funds are regarded as private funds in Thailand, the private fund’s investors will be the owner and beneficiary of the income received by the fund. Accordingly, the benefits that the fund received from the investment will be regarded as the investors’ income and are subject to personal income tax or corporate income tax, as the case may be, under Thailand’s Revenue Code.

Asset protection

Must the portfolio of assets of a non-retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

The portfolio of assets of a non-retail private fund must be deposited with and held by a separate SEC-approved custodian appointed by the AMC, pursuant to section 135 of the SEC Act. Also, pursuant to section 136, the securities company is required to segregate the assets of the person authorising the management of the fund from its assets.

Governance

What are the main governance requirements for a non-retail fund formed in your jurisdiction?

In managing a non-retail private fund, the fund manager or AMC must manage it with honesty and care to preserve the interests of the person who has authorised the management of the private fund, using the knowledge and competence of a professional, in accordance with section 133 of the SEC Act.

Reporting

What are the periodic reporting requirements for non-retail funds?

As stated in the answer to question 21, the AMC is required to regularly evaluate the performance of funds and disclose the operational results and other material information at each particular period to non-retail investors.

In addition, pursuant to clause 12 of the SEC Notification No. KorNor 30/2547, the aforementioned requirement to disclose extends the fund manager’s duty to disclose information that would be sufficient to allow non-retail investors to obtain such information uninterruptedly at all times, as appropriate to the circumstances.

Separately managed accounts

Structure

How are separately managed accounts typically structured in your jurisdiction?

There are no specific or separate treatments in the SEC Act or SEC rules and regulations for separately managed accounts. Nevertheless, for practical purposes, separately managed accounts are conceptually similar to the private fund scheme in Thailand. Therefore, the private fund regime and rules and regulations applicable to private funds are applicable to separately managed accounts in Thailand.

Key legal issues

What are the key legal issues to be determined when structuring a separately managed account?

As a separately managed account is regarded as a type or sub-class of non-retail private fund in Thailand, the key legal issues when structuring a non-retail private fund would apply to that of a separately managed account - see question 24.

Regulation

Is the management or marketing of separately managed accounts regulated in your jurisdiction?

See questions 33 and 34. In short, in Thailand the management or marketing of separately managed accounts is regulated by the same legal regime and requirements that apply to non-retail private funds.

General

Proposed reforms

Are there proposals for further regulation of funds, fund managers or marketers of funds in your jurisdiction?

There are currently proposals by the Thai SEC to further liberalise the investment fund industry by extending the best practices in HNW wealth management to retail investors by standardising basic investment tools.

Public listing

Outline any specific requirements for stock-exchange listing of retail and non-retail funds.

In Thailand, an exchange-traded fund (ETF) is managed by an AMC which has listed the ETF on the Stock Exchange of Thailand (SET). As the ETF is an open-ended mutual fund that is traded on the stock exchange, it is applicable only to the retail mutual fund and not the non-retail fund.

The ETF’s listing requirements are regulated pursuant to the SET Regulations Bor.Jor./Ror. 10-00 re: Listing and Delisting of ETF Units and Information Disclosure of Foreign ETFs B.E. 2554 (2011). Specific listing requirements for ETF units on the SET include specification of the holder’s name on the units and that the units shall contain no transfer restrictions except as required by law or as may be specified in the project.

Overseas vehicles

Is it possible to redomicile an overseas vehicle in your jurisdiction?

There is no regulation or legal regime in Thailand to redomicile an overseas fund to Thailand.

Foreign investment

Are there any special rules relating to the ability of foreign investors to invest in funds established or managed in your jurisdiction or domestic investors to invest in funds established or managed abroad?

There are no specific rules or regulations in Thailand relating to the ability of foreign investors to invest in funds established or managed in Thailand. On the other hand, beginning in 2017, the SEC allowed qualified Thai investors to buy offshore funds directly from brokers or banks without having to go through the master feeder scheme.

Further, the BOT regulates domestic investors’ investment in offshore funds by virtue of its financial oversight in relation to the outflows or remittance of Thai baht currency or foreign currencies.

Funds investing in derivatives

Are there any special requirements in your jurisdiction relating to funds investing in derivatives?

The SEC allows certain non-retail funds (both mutual and private funds) to invest in derivatives or other high-risk financial instruments. Such non-retail funds must specifically target HNW or UHNW individuals, and may not offer units to the public or retail investors. In Thailand, these non-retail funds are called ultra-accredited investor mutual funds (UI Funds). UI funds are similar to hedge funds in other jurisdictions.