2006 Asian Roundtable on Corporate Governance2006 Asian Roundtable on Corporate GovernanceCG Development in Thailand: the Three DisciplinesCG Development in Thailand: the Three Disciplines

Regulatory Discipline -Regulatory Discipline -Fostering Enforcement Mechanisms: Fostering Enforcement Mechanisms:

The Regulatory ChallengeThe Regulatory Challenge

Chalee Chantanayingyong Chalee Chantanayingyong Securities and Exchange Commission, ThailandSecurities and Exchange Commission, Thailand

Bangkok, ThailandBangkok, ThailandSeptember 13, 2006September 13, 2006

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Presentation OverviewPresentation Overview

Overview: CG Development Overview: CG Development in Thailand in Thailand

Enforcement: DifficultiesEnforcement: Difficulties & Measures & Measures

An Unfinished AgendaAn Unfinished Agenda

Overview: Overview: CG Development in ThailandCG Development in Thailand

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CG: National Agenda in 2002CG: National Agenda in 2002

Subcommittee on Law Amendments and Enforcement

Subcommittee on Accounting Standard

Subcommittee on Best Practices of Listed Companies

Subcommittee on Improvement of Corporate Governance of Commercial Banks, Finance Companies and Insurance Companies

Subcommittee on Improvement of Corporate Governance of Securities Companies

Subcommittee on Investors Education and Public Relations and on Corporate Governance in Thailand

Chaired by Prime Minister

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3 Pillars for Better Corporate Governance

Regulatory Disciplines

Market Disciplines Self Disciplines

Good CG

77

Symptoms CG culture

Family-owned business and lots of related transactions

Inadequate level of knowledge among directors

Investors activism Both retail and institutional

investors are not active

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Symptoms (Cont’d) Enforcement

Insufficient enforcement mechanismInsufficient enforcement mechanism Legal proceedings involve too manyLegal proceedings involve too many

agencies agencies Lack of understanding for capitalLack of understanding for capital

market fraud among agencies market fraud among agencies

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International View PointsInternational View Points

World Bank Report: CG – ROSC Published: September 2005 Countries participated: 37 countries

ACGA + CLSA (Hong Kong) Report: CG Watch Published: annually (September-October) Countries participated: 10 Asian countries

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CG – ROSC

Source: CG-ROSC assessment of Asian countries during 2001-2005

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CG – ROSC (cont’d)(cont’d)

Overall assessment• Significant corporate governance reforms have been introduced in recent years • Thailand continues to make progress in improving corporate governance • The reform agenda, however, remains incomplete • Changes in the regulatory framework need to

be translated into actual practices

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CG – ROSC (cont’d)(cont’d)

Recommendation – law enforcement• Establish corporate governance enforcement priorities• Improve enforcement for violation of laws• Introduce administrative and civil sanctions

1313

CG Watch (Oct. 2005)Countries Rules

&RegulationsEnforcemen

tPolitical/

Regulatory environmen

t

Adoption of IGAAP

Institutional

mechanisms

&CG culture

Country score

Singapore 7.4 5.6 7.3 9.5 5.7 7.0 (1)

Hong Kong 6.4 5.8 7.8 9.1 5.4 6.9 (2)

India 6.6 5.6 6.5 7.5 4.3 6.1 (3)

Malaysia 5.9 4.9 6.0 7.5 3.8 5.6 (4)

Taiwan 5.3 4.9 6.5 5.9 3.3 5.2 (5)

Thailand 5.8 4.0 5.0 7.3 3.5 5.0 (6)

Korea 5.1 4.0 4.3 8.2 3.9 5.0 (6)

Philippines 5.3 2.2 5.0 8.2 3.1 4.6 (7)

China 4.3 4.0 5.0 6.8 2.2 4.4 (8)

Indonesia 3.3 2.9 3.0 6.8 2.8 3.7 (9)

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CG Watch (cont’d)(cont’d)

Thailand’s assessment during 2001-2005Year Rules&

Regulations

Enforcement

Political/Regulatory Environmen

t

Adoption of IGAAP

CG Cultur

e

Country score

2001

7.0 2.0 3.0 5.0 4.0 3.7

2002

7.5 2.0 3.0 5.0 4.0 3.8

2003

7.5 3.0 4.0 6.0 4.5 4.6

2004

6.1 3.8 5.0 8.5 3.5 5.3

2005

5.8 4.0 5.0 7.3 3.5 5.0

Enforcement: Enforcement: Difficulties & MeasuresDifficulties & Measures

Difficulties

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Criminal Proceedings

Power of authorities

SEC Police Public Prosecutor Court

• SEC does not have sole authority SEC does not have sole authority to proceed criminal crimes to proceed criminal crimes

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Criminal Proceedings (cont’d) Lengthy legal processLengthy legal process

Many steps and many agencies involvedMany steps and many agencies involved long duration of processlong duration of process

Frequent rotation of officials lack continuity lack continuity

Complicated cases need knowledge and understanding of need knowledge and understanding of business activitiesbusiness activities

Problems in bringing offenders to justiceProblems in bringing offenders to justice Difficulties in proving criminal crimeDifficulties in proving criminal crime

need high standard of prove need high standard of prove Witnesses unwilling to get involvedWitnesses unwilling to get involved

Measures

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3 Steps Scheme3 Steps Scheme

The SEC’s alternative measures to strengthen enforcement power

Prevention SanctionIntervention

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I. Prevention Review financial statementsReview financial statements

100% review of auditors’ report100% review of auditors’ report (quarterly & yearly financial statements) (quarterly & yearly financial statements)

In-depth review for irregularitiesIn-depth review for irregularities Extensive monitoring of auditorsExtensive monitoring of auditors

100% review of auditors’ working papers 100% review of auditors’ working papers of IPO companies of IPO companies

Inquiry auditors for unclear or Inquiry auditors for unclear or ambiguous messages ambiguous messages

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I. Prevention (cont’d)

Stringent monitoring of auditStringent monitoring of audit committee’s performance committee’s performance

Updating on “connected transactions”Updating on “connected transactions” rule rule

Closely monitoring connectedClosely monitoring connected transactions transactions

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II. InterventionII. Intervention Re-issuance of financial statements

Result:• In 2004, 25 companies• In 2005, 37 companies• In 2006, 13 companies

For questionable RPT, top management needs to clarify Result:

• In 2004, stopped 6 inappropriate transactions worth 3,000 million baht

• In 2005, stopped 1 inappropriate transactions worth 350 million baht

• In 2006, stopped 1 inappropriate transaction worth 180 million baht

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II. Intervention (cont’d)II. Intervention (cont’d)

Share price manipulation On-site inspection of securities

companies to break market rumour If there is rumour or leakage, listed

company needs to clarify Closely monitor listed companies’

disclosure to prevent financial statement cosmetic

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III. SanctionIII. Sanction

Besides the criminal proceedings,Besides the criminal proceedings,the SEC introduces an administrativethe SEC introduces an administrativeproceedings to be an alternative toolproceedings to be an alternative tool Introduction of “Director RegistrationIntroduction of “Director Registration

System” System” Appointment of “DirectorsAppointment of “Directors

Responsibility Committee” Responsibility Committee”

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What is Director Registry?What is Director Registry?

All listed + IPO companies have to All listed + IPO companies have to register their directors and top register their directors and top executives in executives in “Director Registry”“Director Registry” through the SEC websitethrough the SEC website List of directors & top executivesList of directors & top executives

shown on the SEC websiteshown on the SEC website

Whitelist

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What is Director Registry? (cont’d)What is Director Registry? (cont’d)

Persons who conducted a malpracticee.g. breach of fiduciary duties or fraudor dishonest management areunqualified persons

SEC will “remove” such persons from whitelist to prevent any further damage to investors

Blacklist

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Director Registry: ResultDirector Registry: Result

Whitelist

~ 8,000 persons

Blacklist 126 persons* Corporate fraud 43* Unfair securities trading 24* Operating securities business without license 24* Denounced by other regulators (BOT, SET) 35

Source: Director Registry System as of Aug 31, 2006

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Directors Responsibility CommitteeDirectors Responsibility Committee

ObjectiveObjective To provide check & balanceTo provide check & balance mechanism mechanism

DutiesDuties To advise SEC on sanctioning To advise SEC on sanctioning of directors of directors

CompositionComposition 9 members comprising both9 members comprising both regulators and business leaders regulators and business leaders

An Unfinished AgendaAn Unfinished Agenda

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An Unfinished AgendaAn Unfinished Agenda

Public’s perception & expectationPublic’s perception & expectation on enforcement power on enforcement power

Continuous training and educationContinuous training and education among enforcing agencies among enforcing agencies

Modernizing the range of regulatoryModernizing the range of regulatory enforcement power enforcement power

Empowering investors with moreEmpowering investors with more efficient tools efficient tools