Liberalisation and regulation should operate in tandem

Shortly after the SEC announced its liberalisation policy came the global financial crisis, which has shaken the world. The Thai market, even with very little direct exposure, felt the impact. Developed countries learned from the crisis and passed law amendments requiring tighter regulation. Questions arose whether we were sure we wanted to continue with our liberalisation plan - a move that seemed to be in the opposite direction from the rest of the world.

Let me say first that the term "liberalisation", which basically means less regulation, is broad. There are many objectives in regulation. We need to differentiate between regulations that are meant to protect investors and the financial system (such as setting standards for public offerings, or for brokers' financial standing and conduct) and those that exist to protect the industry (such as restricting the number of licenses, or having a commission floor).

Above all, we must not forget that capital markets exist primarily to serve the financing needs of businesses and the investment needs of savers, rather than securities businesses as an end in themselves, although having a strong and competitive securities industry will certainly help the market in fulfilling its function.

The question therefore is not simply about whether or not to liberalise, but rather about how to facilitate capital mobilisation and investment, how to protect investors and our financial system, and how to strengthen the securities industry.

In its policy formation process, the SEC has considered several key trends that are expected to take place in the next 10 to 20 years, namely: 1) the rise of emerging Asia as a major contributor to world economic growth, although the question remains as to how much Thailand can benefit from this opportunity; 2) increasing global connectedness among financial markets, which brings opportunities as well as risks; 3) environmental problems and the scarcity of resources, resulting in the need to manage these risks and opportunities for products that address this need; and 4) an ageing population trend worldwide and in Thailand, which can have an impact on productivity, and which implies that we need to strengthen our social safety net for our growing number of people in retirement.

With the above trends in mind, the SEC is adopting a policy mix of liberalisation in some areas, tighter regulation in some areas, along with an increased emphasis on public education.

Regulations should be streamlined to facilitate capital raising, not only for local businesses and infrastructure projects crucial to our national competitiveness, but also for leading enterprises in other countries, for example in Indochina, so that Thailand stands a chance to play a regional role.

Securities firms should have more freedom to offer products and services to their clients, in terms of product variety, currency denomination and distribution channels, so that they can compete with foreign counterparts. Enabling firms to compete is better than protecting them by inhibiting competition from new entrants or foreign firms (since the latter has the effect of restricting customer choice and reducing industry incentive to improve its own competitive ability).

On the other hand, regulations can be tightened for intermediaries and market professionals. When the SEC plays a reduced role in screening products for the public, some other mechanisms must be in place to ensure adequate investor protection. Financial advisors, fund managers and brokers are expected to perform due diligence and undertake thorough analysis before making investment decisions or recommendations to their clients. And securities firms should be required to have a good risk management system and adequate capital as a cushion against external impacts.

Requiring higher standards and levels of accountability for intermediaries and market professionals is not inconsistent with promoting competition and investor choice.

Finally, there is a nationwide problem of poor financial literacy. A large portion of our population still lacks the skills to manage their own money. Nor do they see the need to invest for old age. Given the fact that Thailand is now an ageing society, poor financial literacy will lead to the problem of poverty and increased burden to the government in the long run. Low financial literacy is also a major obstacle to capital market development. This is why the SEC has begun to put a great emphasis on building financial literacy in addition to the above liberalisation plan.

Tipsuda Thavaramara is senior assistant secretary-general of the Securities and Exchange Commission.