to managers - bank of thailand · to managers all financial institutions no. rpd.(01)c. 66/2561 re:...

22 June 2018 (B.E.2561)

To Managers

All financial institutions

No. RPD.(01)C. 66/2561 Re: Issuance of the Bank of Thailand Notification on Corporate Governance of Financial Institutions and Guidelines on Approval of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions

In the rapidly changing financial environments which are volatile, uncertain, complex and ambiguous, in conjunction with increasing use of technology in providing financial services, and increasing importance of running business sustainably by taking into account interests of stakeholders, the Board of Directors and senior executives of the financial institutions, who are responsible for setting directions and overseeing financial institutions, must have enough and relevant knowledge, capability, and experience to ensure that they can keep up and deal with significant changes and must possess fit and proper qualifications, especially ethics and honesty. Furthermore, financial institutions that embed good corporate governance into their business practices will be able to manage risks well and sufficiently take into account interests of stakeholders, increasing values to the financial institutions in the long-term and supporting the sustainable economic growth.

The Bank of Thailand therefore amends the regulations regarding corporate governance of financial institutions. The attached herewith are the Bank of Thailand Notification No. FPG. 10/2561 Re: Corporate Governance of Financial Institutions dated 22 May 2018 and the Bank of Thailand Notification No. FPG. 11/2561 Re: Guidelines on Approval of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions dated 22 May 2018. Both Notifications were published in the Government Gazette, Announcement and General Works, Vol. 135, Special Chapter 146 Ngor dated 22 June 2018 and have come into force since the day following the dates of their publication in the Government Gazette.

I. The essence of the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions is as follow;

1. Determine that directors and senior executives of financial institutions shall dedicate their time and effort in performing their duties at the financial institutions. For instance, each director shall effectively participate and give beneficial advice in the

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meetings, senior executives must not serve as full-time staff members of any other organizations if that could affect the efficiency of their duties at the financial institutions.

2. Enhance responsibilities of directors and senior executives in overseeing risks and promoting good corporate governance in the organizations, for instance, building and fostering a risk culture, which includes having remuneration policy that reflects risk culture and having whistleblowing policy and procedures.

3. Enhance the mechanisms to ensure that the Board of Directors effectively and independently perform their duties at the financial institutions by, for example, requiring that independent directors cannot serve as independent directors at that same financial institutions for more than 9 consecutive years, the board of directors must be composed of a good mix of members from diverse background and with relevant knowledge, competence, experiences or skills appropriate with their strategies and long-term business operations, the second line and third line functions must have pari passu status with other functions and must have direct reporting line to the relevant oversight-level committees, and the risk oversight committee shall be set up to support the board of directors in overseeing risks.

4. Enhance corporate governance disclosure, for instance, by requiring financial institutions to disclose fines imposed by the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission

II. The essence of the Bank of Thailand Notification Re: Guidelines on Approval of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions is as follow;

1. Financial institutions shall regularly review the qualifications and appropriateness of the highest-ranking executive and seek approval for the appointment of such person from the Bank of Thailand at least every 4 years.

2. Applicants to be directors, managers, persons with power of management or advisors of financial institutions must declare their qualifications that may negatively affect their fitness and propriety to serve as directors, managers, persons with power of management or advisors of the financial institutions (such as having a record of being investigated by their former or current employers regarding the violation of laws or internal guidelines with regard to honesty) and must be responsible for the accuracy and the completeness of all the information given to the Bank of Thailand in the approval process.

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Financial institutions shall notify the Bank of Thailand as soon as they become aware of any material information that may negatively affect the fitness and propriety of those who serve as directors, managers, persons with power of management or advisors of the financial institutions.

Please be informed and comply with accordingly.

Yours sincerely,

(Miss Mathinee Subhaswadikul) Senior Director, Regulartory Policy Department

on behalf of the Governor Attachments 1. The Bank of Thailand Notification No. FPG. 10/2561 Re: Corporate

Governance of Financial Institutions dated 22 May 2018 2. Bank of Thailand Notification No. FPG. 11/2561 Re: Guidelines on Approval

of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions dated 22 May 2018

Regulartory Policy Department Tel. 0 2283 6875, 0 2283 5311 Remark: [ ] The BOT will arrange a clarification meeting on … at …

[X] No clarification meeting will be arranged.

BOT Notification No. 10-2561 (28 September 2018) - Check

Unofficial Translation with courtesy of the Association of International Banks

This translation is for convenience of those unfamiliar with Thai language. Please refer to the Thai text for the official version.

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Bank of Thailand Notification No. FPG. 10/2561

Re: Corporate Governance of Financial Institutions

---------------------------------- 1. Rationale

Financial institutions are currently confronting more volatile, uncertain, and complicated financial environments, while the impacts cannot be clearly anticipated, as well as there is an increase in the deployment of technology in providing financial services, whereas the stakeholders and public, increasingly, expect that the financial institutions would operate business with good corporate governance, in respects of duties and responsibilities of the board of directors and senior executives, mechanisms that support the effective and risk-focused operations and internal control, the encouragement of risk culture and behaviors, fair treatment and transparent business. This framework would allow financial institutions to manage risks through the consideration of all stakeholders, and it would also create long-term business value, and support the sustainable economic growth.

The Bank of Thailand deems it appropriate to amend guidelines on corporate governance of financial institutions, by focusing on the enhancement of duties and responsibilities of the board of directors and senior executives, the mechanisms that will ensure that the execution of duties of directors and senior executives is effective and independent, the encouragement of risk culture, fair treatment and transparent business. The amended guidelines cover the matters, namely risk management framework, corporate governance policies, the building and fostering of risk culture, the oversight that will ensure that the management control risks within the approved risk appetite and risk limit, check and balance mechanism under the effective three lines of defense framework, whistleblowing policy and procedure, and remuneration policy that reflects risk culture. In addition, financial institutions must disclose data relating to corporate governance to enable more effective market discipline. On this, these amended guidelines are in accordance with the Corporate Governance Principles for Banks of the Basel Committee on Banking Supervision (BCBS).


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2. Statutory Power

By virtue of the power conferred by Section 26, Section 27, Section 39 (5), Section 41 – Paragraph 3 (3), Section 71 and Section 84 of the Financial Institution Business Act B.E.2551, the Bank of Thailand hereby issues guidelines on corporate governance of financial institutions as specified herein.

3. Repealed Notifications

3.1 The Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions dated 9 July 2009 (B.E.2552)

3.2 The Bank of Thailand Notification No. FPG. 15/2552: Duties and Responsibilities of Financial Institution’s Directors That the Bank of Thailand Places the Highest Priority dated 9 July 2009 (B.E.2552)

4. Scope of Application

This Notification shall apply to:

4.1 All locally registered commercial banks

4.2 All finance companies and credit foncier companies

4.3 All foreign bank braches – only the following clauses shall apply:

4.3.1 The appointment and qualifications of managers, persons with power of management or advisors of financial institutions

4.3.2 The disclosure of data relating to fines imposed by supervisory agencies, namely the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission

4.3.3 Duties and responsibilities of senior executives of financial institutions


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5. Contents

5.1 Definitions

“Business group” means:

(1) A group of companies that comprises of the parent company, subsidiary companies or affiliated companies;

(2) A group of companies that are under the control of the same entity

“Financial business group” means a financial business group according to the Bank of Thailand Notification Re: Guidelines on Structure and Scope of Business of Financial Business Groups.

“Director” means a person appointed as a member of the board of directors of the financial institution or company, as the case may be.

“Executive director” means:

(1) A director who performs management duties in the capacity of a manager, deputy manager, assistant manager or any person holding equivalent position but with different job title;

(2) A director who has duties and responsibilities to perform or participate in any management duties similar to an executive, including a director appointed as a member of the executive committee1.

(3) A director who has signatory power to obligate the financial institution, unless such binding signature is for those approved by the board of directors on a case-by-case basis and cosigned with other director(s).

“Non-executive director” means a director who does not perform management duties as an executive director.

“Independent director” means a non-executive director who has qualifications according to Clause 5.2.3 of this Notification.

1 Executive committee, in this context, means the “management-level” executive committee


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“Person with power of management” means:

(1) A manager, deputy manager, assistant manager or executive director of the financial institution or company, as the case may be, or a person holding equivalent position but with different job title;

(2) A person with whom the financial institution or company has entered into an agreement to perform partial or full management duties; or

(3) A person who has de facto power to control or dominate a manager, directors, or management of the financial institution or company, as the case may be, to comply with his/her instructions in formulating policies or conducting business of the financial institution or company.

“Advisor” means a person appointed as an advisor to the financial institution, or a person who performs any duties in the capacity of a director, manager, deputy manager or assistant manager but holding the position as an advisor, including a person with the similar characteristics but holding any other position. Nevertheless, this excludes a person who is employed by the financial institution for his/her special technical expertise or special skill, such as accounting advisor, legal advisor, information technology advisor, tax advisor, language advisor, corporate communication advisor, insurance advisor, or advanced quantitative model advisor, etc.

“Senior executives” shall include financial institution’s managers, deputy managers, assistant managers and advisors who perform any duties in the capacity of a manger, deputy manager or assistant manager but holding the position as an advisor, including those who perform the similar duties but holding any other positions.

5.2 Appointment of directors, managers, persons with power of management or advisors of financial institutions

5.2.1 Appointment of directors, managers, persons with power of management or advisors of financial institutions

The appointment of directors, managers, persons with power of management or advisors is subject to prior approval from the Bank of Thailand. In requesting the approval of the appointment of directors, managers, persons with power of management or advisors, and in notifying change of directors, managers, persons with power of management or advisors, financial institutions shall comply with the Bank of Thailand Notification Re: Guidelines on Approval of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions.


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5.2.2 Qualifications of directors, managers, persons with power of management or advisors of financial institutions

Directors, managers, persons with power of management or advisors of financial institutions must have “fit and proper” qualifications and capacity, and must not have prohibited characteristics as specified in the Bank of Thailand Notification Re: Guidelines on Approval of the Appointment of Directors, Managers, Persons with Power of Management or Advisors of Financial Institutions.

5.2.3 Qualifications of independent directors

(1) Apart from those as specified in Clause 5.2.2, independent directors must also have qualifications as specified in the Notification of the Capital Market Supervisory Board Re: Guidelines on Approval of the Sale Offerings for Newly Issued Shares, especially they must not have business involvement, or take part in, or have interests in their responsible financial institutions, or must not have any characteristics so that they may not independently make a decision or vote on the financial institution’s business operations.

(2) Those to be appointed as independent directors of a particular financial institution must not be or had not been non-independent directors, as well as managers, persons with power of management, advisors or staff members of “that” financial institution and companies within its financial business group, unless they have been discharged from such positions or status for no less than 2 years prior to the day the appointment request is submitted.

(3) Independent directors can hold their positions in a particular financial institution for no more than 9 consecutive years, including the period during which they serve as independent directors of companies within “that” financial institution’s business group

For an independent director who had held the position for 9 years in any particular financial institution wishes to be re-appointed as an independent director, he/she must have been discharged from the position of director, manager, person with power of management, advisor, staff member of “that” financial institution and companies within its financial business group at least 2 years before the day the appointment request is submitted.


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In addition, for an independent director of any particular financial institution who had held the position for less than 9 years, if he/she has been discharged from the position of independent director of “that” financial institution and companies within its financial business group, while, over that period, he/she has not been appointed as a director, manager, person with power of management, advisor, staff member of “that” financial institution and companies within its financial business group, he/she may be re-appointed as an independent director, but the period during which he/she serves as an independent director must be “all” counted.

5.2.4 Involvement in other organizations of directors, managers, persons with power of management and advisors of financial institutions

To ensure that directors, managers, persons with power of management and advisors can effectively contribute their time to the business management of their financial institutions, therefore, they must have limited involvement in other organizations, as follows:

(1) A director, manager, person with power of management or advisor can serve as the chairman of the board or/and executive director of no more than 3 “other” business groups, apart from his/her position in the financial institution. If any company does not have a business group, that company, itself, will be considered to be the business group, and for companies acquired from debt restructuring, they shall be considered companies within the financial business group of the financial institution; and

(2) A director, manager, person with power of management or advisor can serve as a director of a company listed on the domestic and overseas stocks exchange for no more than 5 companies, excluding listed companies acquired from debt restructuring. If the financial institution that “such” director, manager, person with power of management or advisor serves is a listed company, it shall be counted as one listed company, out of the 5 listed companies.

If the Bank of Thailand considers that serving as the chairman of the board or director of other companies according to (1) and serving as a director of other companies according to (2) or holding any position in other companies may be excessive and, therefore, affect the management effectiveness of a particular director, manager, person with power of management or advisor, the Bank of Thailand may require any other arrangements.


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(3) A senior executive must not serve as a full-time staff member of other organizations, unless the Bank of Thailand considers that this does not affect the effectiveness of his/her duties in the financial institution.

5.3 Duties and responsibilities, and composition of the board of directors

5.3.1 Duties and responsibilities of the board of directors

The board of directors has duties and responsibilities for formulating important business strategies and policies, overseeing that the financial institution has effective control, oversight and audit mechanism, and monitoring business undertakings of the financial institution, on an ongoing basis, to ensure that it operates business fairly and transparently, and is responsible for the stakeholders under good corporate governance framework, while there is the creation of long-term value of the financial institution, as follows:

(1) Formulation of important strategies and policies; the board of director must:

(1.1) Formulate overall business directions and strategies of the financial institution, and approve important policies and strategies, while ensuring that the financial institution places high priority on business sustainability

(1.2) Formulate or approve the risk governance framework to support business operations of the financial institution under the specified directions and targets. And, due to rapidly changing business environments and there is a significant increase in the adoption of new technologies, the board of directors must, therefore, have knowledge and understanding of risks facing financial institution business, such as credit risk, market risk, operational risk, liquidity risk, reputational risk, strategic risk and information technology risk, as well as risk that may arise from the launch of new products and certain significant business changes, such as mergers and acquisitions, revision of important operating systems. The board of directors must also have understanding of the tools that can be used for managing those risks as well as relationship between those risks and the adequacy of capital and liquidity of the financial institution. In addition, the board of directors must oversee that the financial institution has effective risk management systems and processes to support its business operations and that there is the building of risk culture, and oversee that the financial institution has appropriate remuneration policy as it attracts and helps maintain quality staff, and ensures staff loyalty, while the remuneration structure must also promote risk culture. Duties


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and responsibilities of the board of directors relating to the risk governance framework are specified in Clause 5.5, and the effective remuneration structure is specified in Clause 5.6.

(1.3) Formulate or approve clear and written good corporate governance policies that appropriately engage all stakeholders and ensure fair treatment of both customers and the public, covering credit products, deposit products, off-balance sheet transactions, and other matters, including:

(1.3.1) Oversee that the financial institution sets out or approves the conflict of interest policy to prevent any dealings for their own benefits or for those of their related parties or prevent conflict of interest issues, as well as a failure to address significant risks, especially the entering into transactions with related parties of the financial institution that may need special attention

(1.3.2) Oversee that the financial institution establishes an internal code of conduct, code of business ethics, and code of ethics for directors, persons with power of management and staff members

(1.3.3) Oversee that the financial institution has fair market conduct according to the Bank of Thailand Notification Re: Guidelines on Market conduct, which cover all service operation processes (end-to-end process) that are the foundation of fair market conduct

(1.3.4) Oversee that the financial institution has effective the whistleblowing policy and procedure to ensure that there is a process to monitor and report the action that may violate laws, internal policies, guidelines and processes, as well as business ethics – as specified in Clause 5.7

(2) Oversee that the financial institution has effective control, oversight and audit mechanisms

(2.1) Oversee that there is the appropriate balance of power between the board of director members by placing importance on the component or number of independent directors, and ensure that the board of directors members can effectively perform their balance of power roles, such as there must be a regular meeting between non-executive directors

(2.2) Consider appointing and approving roles and responsibilities of sub-committees of the board of directors as deemed appropriate and necessary for the financial institution, and those committees are expected to


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support the execution of the board of directors’ duties. The board of directors must, also, consider approving the change of composition and any changes that may affect the operations of the appointed committees. On this, duties and responsibilities, and composition of each committee specified in Clause 5.4.

(2.3) Oversee that the financial institution has effective internal control that covers all operations of the financial institution and can promptly detect any possible loopholes, and has the organizational structure that promotes independent and effective control, oversight and audit functions (three lines of defense) to ensure that the operations comply with the specified policies and processes, laws and supervisory guidelines, Bank of Thailand’s instructions, internal guidelines and procedures. On this, effective internal control must cover the matters as specified in Clause 5.8.

(2.4) Oversee that the financial institution disclose important corporate governance data at the shareholders’ meeting and to the public to promote and demonstrate that the financial institution is committed to good corporate governance. On this, guidelines for disclosure of corporate governance data are specified in Clause 5.9.

(2.5) Oversee that there is an annual assessment of the performance of the overall board of directors and each individual director in the forms of (i) self-evaluation; and (ii) cross evaluation or third party evaluation, and there is an assessment of the performance of the top executive of the financial institution, while the directors must continuously obtain the skill training that they need for their duties

(3) Continuously monitor and oversee the operations of the financial institution

(3.1) Oversee that senior executives implement the specified policies and strategies throughout the organization, as well as set out processes and operating systems, and make the relevant arrangements so that the financial institution reaches the targets according to the policies and strategies as specified or approved by the board of directors. On this, duties and responsibilities of the senior executives are specified in Clause 5.10.


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(3.2) Oversee that senior executives report important issues of the financial institution to the board of directors, while there must be a reporting process so that the board of directors promptly receives sufficient information so that the board can, properly, exercise the power, or perform its duties and responsibilities. The board of directors must also oversee that there is a process for the prompt submission of a management letter from external auditors as well as the suggestions of senior executives to the board of directors, where the board is expected to receive those documents within 4 months from the end of the accounting period. If there is a delay in the submission of those documents, the board of directors must require an explanation from senior executives.

(3.3) Oversee that the financial institution prepares the complete minutes of the board of directors’ meeting, where the comments on important agenda/issues of each individual director must be recorded. A copy of the minutes of the board of directors’ meeting, minutes of executive committee’s meeting, or minutes of the directors’ meeting for formulating policies or for making a decision on management issues shall be submitted to the Supervision Group, Bank of Thailand, within 7 days from the day the board endorses the minutes, but no later than 45 days from the day the meeting is convened. However, under certain circumstances as deemed necessary and with reasonable grounds, if the minutes cannot be submitted within the specified time limit, the financial institution must consult the Bank of Thailand’s examiners on a case-by-case basis.

(3.4) Oversee to ensure that senior executives have skills needed for performing financial institution’s functions as well as the appointment of persons with power of management who have appropriate qualifications, and that there is a succession plan for senior executives to ensure that the financial institution can operate its business on an ongoing basis

5.3.2 Duties and responsibilities of directors of financial institutions

To ensure that directors can effectively and transparently monitor and supervise the business operations of the financial institution, the directors must have knowledge and understanding of their qualifications, duties and responsibilities, as well as comply with the following guidelines:

(1) Perform their duties responsibly, cautiously and reasonably (duty of care) with loyalty to the financial institution they serve (duty of loyalty) by not seeking self-benefits and without any bias in the form of cherry picking or favoritism, while fostering the overall organization’s benefits - not limited to a particular group of


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shareholders or a particular shareholder (no conflict of interest and no self-dealing). Directors must also prevent the intervention in any decision-making that would increase risk exposures of the financial institution, and if the intervention involves any individual’s own benefits, it will be, in the first place, considered that such action demonstrates the lack of honesty, unless it can be explained with reasonable grounds

On this, to avoid conflict of interest issues, if there is an agenda that a particular director may have interests, directly or indirectly, “that” director must inform the board of directors and must not participate or take part in the decision or vote on such agenda.

(2) Make a decision or vote based on sufficient basic information (informed decision); the directors must have sufficient information before they make any decision or vote on any issues to ensure that such decision or vote has been made based on reasonable business grounds that should be expected from professional financiers and bankers

(3) Make a sensible decision or vote (rational decision), where the directors must have reasonable grounds that should be expected from professional financiers and bankers in making a decision or voting on any issues, there may be several reasonable choices (range of decision), however, the decision or vote that is made without reasonable grounds that should be expected from professional financiers and bankers is, therefore, considered unreasonable.

(4) Fully contribute time and expertise to the assigned duties and responsibilities; each individual director must take part in making constructive inquiries or giving comments at the meeting using his/her best efforts. Each individual director must, at least, participate in no less than 75% of the board of directors meetings that have been arranged each year, over the period that he/she holds the position, unless with reasonable grounds or necessity.

(5) The chairman of the board of directors must take the role in promoting the open discussion at the meeting as well as good relationship between executive directors and non-executive directors.

(6) Use the results of the annual performance assessment to develop themselves

(7) Comply with the public limited company laws and other related laws, as well as the objectives, company’s rules, the resolutions of the board of


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directors meetings and the resolutions of the general shareholders’ meetings, as well as the instructions given by the Bank of Thailand’s examiners.

5.3.3 Composition of the board of directors

To ensure that the board of directors can perform its duties by appropriately balancing the power of persons with power of management and/or major shareholders, and oversee to ensure that the financial institution can operate its business under the volatile, uncertain, complicated and unpredictable environments, the composition of the board of directors must, therefore, be:

(1) The composition of the board of directors must comply with those as specified in the Notification of the Capital Market Supervisory Board Re: Guidelines on Approval of the Sale Offerings for Newly Issued Shares.

(2) The chairman of the board of directors must be an independent director or non-executive director, unless approved otherwise by the Bank of Thailand; in giving the approval, the Bank of Thailand may impose approval conditions to ensure that the financial institution has in place a mechanism that promotes the balance of power within the board of directors.

(3) Members of the board of directors must have a wide range of knowledge, competence, experiences or skills commensurate with size, complexity, nature of business and risk exposures, as well as strategies and long-term business of the financial institution. At least, one member of the board of directors must have knowledge or experiences in IT.

5.4 Duties, responsibilities, and composition of the committees

To ensure that the board of directors can perform their duties and responsibilities as well as oversee that the financial institution operates business according to the specified policies and strategies under good corporate governance framework, the board of directors shall set up the committees, namely audit committee, risk oversight committee, as well as nomination committee, remuneration committee, and other committees to support the execution of the board of directors’ duties as deemed necessary and appropriate, commensurate with size, complexity, nature of business and risk exposures, as well as strategies and long-term business of the financial institution. The board of directors may appoint one committee to take charge of the duties


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of the nomination committee and remuneration committee. Each individual committee shall have duties and responsibilities as follows:

5.4.1 Audit committee

(1) Duties and responsibilities

(1.1) Review in order to ensure that the financial institution has a correct and adequate financial reporting process

(1.2) Review and assess the financial institution’s internal control and internal audit systems to ensure their adequacy and effectiveness

(1.3) Review the financial institution’s compliance with laws governing securities and stock exchange, the Stock Exchange of Thailand regulations, and other laws relating to the financial institution’s business

(1.4) Consider, select, propose the appointment and remuneration of the financial institution’s auditors

(1.5) Consider the adequacy and accuracy of the financial institution’s information disclosure, especially related-party transactions or items that may lead to conflict of interest issues

(1.6) Prepare an audit committee oversight report and disclose it in the financial institution’s annual report

(1.7) Set out the audit committee’s duties including changes in the composition and changes that might materially affect the audit committee’s performance, in writing, as approved by the board of directors and disclose it to shareholders in the financial institution’s annual report

(1.8) Report to the board of directors in order to take remedial action within the time that the audit committee deems appropriate in the event where the audit committee discovers or suspects any misconduct as follows:

(1.8.1) Any conflict of interest transaction

(1.8.2) Any fraud, irregularity or material deficiency in the internal control system


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(1.8.3) Violation of laws governing financial institution business, laws governing securities and stock exchange, the Stock Exchange of Thailand regulations, the Bank of Thailand regulations, other relevant laws related to financial institutions business and securities, and other laws. If the board of directors or executives do not take remedial action within the time limit as specified by the audit committee, the audit committee must disclose such violation in the annual report and report it to the Bank of Thailand.

(1.9) Assess the efficiency and effectiveness of the performance of the head of internal audit function

(1.10) Perform any other duties assigned by the board of directors with the audit committee’s consent

In addition, the audit committee should review its roles, responsibilities and serving term of the members of the audit committee. On this, the audit committee may seek professional advice from external counsel at the expense of the financial institution.

(2) Composition

To ensure that the audit committee can fully and independently perform its audit duties

(2.1) The audit committee must have composition and qualifications as specified in the Notification of the Capital Market Supervisory Board Re: Guidelines on Approval of the Sale Offerings for Newly Issued Shares.

(2.2) The chairman of the audit committee must not be the chairman of the board of directors, risk management committee, nomination committee and/or remuneration committee.

5.4.2 Risk oversight committee

(1) Duties and responsibilities

(1.1) Give suggestions to the board of directors about the financial institution’s risk management framework

(1.2) Oversee that senior executives and the head of risk management function comply with risk management policies and strategies as well as the specified risk appetite


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(1.3) Oversee that strategies on capital and liquidity management for absorbing various types of risk of the financial institution are in line with the approved risk appetite

(1.4) Revisit and review the sufficiency and effectiveness of the overall risk management policies and strategies as well as risk appetite at least once a year or when there is any significant change, where the risk oversight committee should consult and exchange views with the audit committee in order to assess if the risk management policies and strategies cover all existing and new types of risk facing the financial institution and if the implementation of such policies and strategies are effective and efficient.

(1.5) Report the following to the board of directors: risk exposures of the financial institution, effectiveness of risk management, progress on the implementation of risk culture, as well as important factors and problems, and the required revisions to meet the risk management policies and strategies

(1.6) Express an opinion or take part in the evaluation of the effectiveness and efficiency of the head of risk management function

(2) Composition

(2.1) The risk management committee must consist of, at least, 3 persons

(2.2) The chairman of the risk management committee must be an independent director or non-executive director.

(2.3) All committee members must be directors, senior executives or advisors, and, at least, half of the members must be independent directors, non-executive directors or advisors who serves as directors.

(2.4) At least, one committee member must have knowledge, competence and understanding of risks relating to financial institution business.

On this, for a small-sized financial institution with uncomplicated business structure, it may appoint other oversight-level committee to serve as the risk management committee. However, the composition of the committee must be commensurate with size, complexity, nature and risks of the financial institution, and promote the effectiveness and


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efficiency of the audit and balance of power mechanisms. If the Bank of Thailand’s examiners consider that such committee may not be well established or cannot serve as the risk oversight committee as specified in this Notification, they may require any other arrangements.

5.4.3 Nomination committee

(1) Duties and responsibilities; the nomination committee shall:

(1.1) Formulate policies, guidelines and methods for the selection of candidates for directors and persons with power of management for the board of directors’ consideration and appointment, and submit such policies to the Bank of Thailand when requested

(1.2) Select and nominate qualified candidates for the following positions to the board of directors:

(1.2.1) Directors

(1.2.2) Members of the committees whose duties, responsibilities, and authorities are directly assigned by the board of directors

(1.2.3) Persons with management authority

(1.2.4) Advisors

(1.3) Oversee that the size and composition of the board of directors is appropriate to the organization as well as changing business environments; the nomination committee must oversee that there is a mechanism or tools to support a process for selecting or nominating candidates for directors to ensure that the members of the board of directors have behaviors and a wide range of knowledge, competence and experiences that are favorable to long-term business as well as directions and strategies of the financial institution, such as developing a skill matrix that is necessary for the board of directors

(1.4) Oversee that there is the disclosure of a policy and process for the selection of directors and persons with power of management in the financial institution’s annual report.

On this, the nomination committee should convene at least twice a year, and it may seek professional advice from external counsel at the expense of financial institution.


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(2) Composition

(2.1) The nomination committee must consist of, at least, 3 persons.

(2.2) The chairman of the nomination committee should be an independent director.

(2.3) All committee members must be independent directors or non-executive directors.

5.4.4 Remuneration committee

(1) Duties and responsibilities; the remuneration committee shall:

(1.1) Set out the remuneration and other benefits policies as well as remuneration packages and benefits for directors and persons with power of management that reflect the objectives, duties and responsibilities, and relevant risks, where the policies must contain clear and transparent criteria as they must be presented to the board of directors for consideration and approval, and submitted to the Bank of Thailand when requested.

(1.2) Oversee that remuneration packages for directors and persons with power of management are commensurate with their duties and responsibilities. Directors who have been assigned additional duties and responsibilities should receive remuneration packages that are appropriate to such assignments.

(1.3) Set out performance assessment criteria for directors and persons with power of management for annual remuneration review, by taking into account their responsibilities and relevant risks, while emphasizing the value added to long-term shareholders’ interests

(1.4) Disclose the remuneration policy and various forms of remuneration packages, and a remuneration report that must, at least, contain details of factors used for assessing the overall performance, objectives and operations, as well as opinions of the committee, and methods and tools for determining remuneration packages that respond to relevant risks (if any) in the financial institution’s annual report

On this, the remuneration committee should convene at least twice a year, and may seek professional advice from external counsel at the expense of financial institution. In addition, the remuneration committee should closely


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work with the risk oversight committee to ensure that the remuneration policy can reflect important risks facing the financial institution.

(2) Composition

(2.1) The remuneration committee must consist of, at least, 3 persons

(2.2) The chairman of the remuneration committee should be an independent director

(2.3) All committee members must be independent directors or non-executive directors

5.5 Risk governance framework

The board of directors must be responsible for setting out or approve the effective risk governance framework, which consists of risk appetite, risk management policies and strategies, and ensuring that the financial institution has a system and risk management process that can address the overall risk and significant risks facing the financial institution (comprehensive risk management policy and process) and risk culture.

On this, duties and responsibilities of the board of directors relating to the risk governance frameworks are as follows; the board of directors shall:

5.5.1 Formulate or approve the overall risk management policies and strategies, transaction or new product policy, and risk appetite that is appropriate to risk profile, business model and the level of systemic importance of the financial institution, as well as robustness of capital and liquidity positions of the financial institution. Such policies and strategies must be prepared in writing and communicated to stakeholders, and any change to such policies and strategies must be subject to approval from the board of directors.

5.5.2 Oversee that the financial institution has risk-taking policies and processes, as well as internal pricing process (if any) that are appropriate to the approved overall risk management policies and strategies as well as risk appetite. The board of directors shall also oversee that the financial institution has a transaction policy that is prudent, discreet, and appropriate to economic conditions, or policy on the management of non-performing loans and investments, as well as oversee over that the financial institution has set aside sufficient bad-debt provisions to absorb possible losses.


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5.5.3 Assign and oversee that senior executives set out risk limit in accordance with risk appetite, and regularly communicate with related persons to ensure their acknowledgment and understanding, and ensure that risk exposures of the financial institution are controlled within the specified risk limit and appetite

5.5.4 Assign and oversee that senior executives set out detailed policies, processes, and systems for managing the overall risk and each individual risk, as well as frameworks or procedures for identifying, assessing, monitoring and controlling risks as well as risk reporting framework and effective data management system, which can accommodate the management and reporting of all significant risks facing the financial institution both currently and in the future, and are in line with the specified strategies. Such frameworks and systems should, at least, cover credit risk, market risk, operational risk, liquidity risk, reputational risk, strategic risk and IT risk, and be in line with the financial institution’s risk profile, while they can address the level of systemic importance of the financial institution and risks from the assessment of market conditions and macro-economic factors.

If a particular financial institution uses modeling technique for assessing its risk exposures, the board of directors must assign senior executives to oversee that the financial institution comply with the minimum requirements as specified by the Bank of Thailand, and that there is the independent assessment and validation of the model on a regular basis. In addition, the board of directors must be aware of and understand limitations and uncertainty of the results and risks from the use of modeling technique.

5.5.5 Approve organizational structure that is favorable to the monitoring, oversight, control and audit to ensure that the operations comply with policies, strategies, processes and procedures on risk management, where command hierarchy and reporting line must promote the balance of power as there must be the segregation of duties between risk-taker functions and risk management functions

5.5.6 Oversee that there is the building of risk culture by ensuring that there is the communication of risk management policies and strategies as well as risk appetite and risk limit, which may be in the form of “risk appetite statement (RAS)” so that all staff members of the financial institution understand the importance and their contribution to the risks, and, as a result, they would perform their duties more attentively and prudently


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5.5.7 Review and verify the adequacy and effectiveness of the policies and strategies on overall risk management, risk appetite at least once a year or as there is any significant change, such as risk profile, business strategies, level of systemic importance of the financial institution, market conditions and macro-economic factors so that the policies and strategies are revised in response to those changing circumstances

5.5.8 Monitor the overall risk exposure and the exposure to each individual type of risk, and the progress on the implementation of risk culture, as well as significant factors and problems facing the financial institution. The reports from relevant committees and senior executives must be regularly submitted to the board of directors. Senior executives must ensure that such reports are accurate, complete, timely, and reflect risk profile as well as the adequacy of capital and liquidity positions of the financial institution.

5.5.9 Oversee that the financial institution hold stable and sufficient capital and liquidity to support both current and future business operations, where the board of directors shall:

(1) Regularly monitor capital level and liquidity positions of the financial institution, where the board of directors and senior executives must receive sufficient and timely information, and understand inherent risk exposures of the financial institution and the connection with capital level and liquidity positions. The received risk management information must be regularly reviewed and the board must understand the essence and limitations of such information.

(2) Oversee that the financial institution has processes or tools for overseeing the adequacy of capital and liquidity so that it can monitor capital level and liquidity positions to ensure that they are at the stable levels and sufficient to support both current and future business operations. The internationally accepted process for this purpose is the “Internal Capital Adequacy Assessment Process (ICAAP)”, which is under the Basel Pillar 2 framework, where there must be stress testing and assessment if the financial institution can survive under stress scenarios, while the financial institution must also conduct capital planning to ensure that its capital level can support business expansion under current and future circumstances according to the specified strategies. In addition, there must be recovery planning, where the board of directors must set out the policies on preparation of a recovery plan in accordance with the guidelines as specified by the Bank of Thailand.


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(3) Oversee that the financial institution convenes a shareholders’ meeting within 4 months from the end of the 6-month accounting period or within the time period according to Paragraph 4 of Section 67 of the Financial Institution Business Act - whichever comes first, in the event where the financial institution has incurred a loss to the extent that the shareholders’ equity, at the end of the 6-month accounting period, drops below 50% of the paid-up capital. And, the financial institution must convene a subsequent shareholders’ meeting as the shareholders’ equity, further, drops below 25% of the paid-up capital. This is to ensure that shareholders are informed of the financial institution’s actual financial status and operating performance.

5.6 Remuneration structure

To ensure that the financial institution has remuneration structure that reflects the objectives and risks of each individual unit, by placing high priority on the long-term business stability, as well as helps retain quality staff and promotes the honest and efficient execution of duties of the staff; the effective remuneration must, therefore, have the following features:

5.6.1 The remuneration structures of important risk-taker units and risk-control functions, such as risk management function, compliance function and internal audit function, must reflect duties and responsibilities of each unit/function, future risks, and must not rely, too much, on short-term profits or targets, and must not create incentives for entering into too risky transactions. The financial institution may use tools or methods that would ensure that the remuneration structure reflects duties of each unit/function, long-term risks, and losses that may incur in the future, such as using the deferred variable pay approach, bonus-malus approach, and the payment of bonus based on the average of expected values of financial institution’s stock in the future.

5.6.2 There must be the periodical monitoring and assessment of the effectiveness and efficiency of remuneration structure, as certain improvements or other measures may be required to ensure that the structure can support the business operations of the financial institution under good corporate governance framework.

5.7 Whistleblowing policy and procedure

To ensure that the financial institution has whistleblowing procedure and the reporting of action that may violate laws, policies, guidelines and internal


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processes, business ethics, which will ensure that the stakeholders are fairly treated, while promoting extensive reporting and resolution of frauds or violation of laws or internal regulations; the whistleblowing policy and procedure should, therefore, cover, but not limited to, the following matters:

5.7.1 The whistleblowing policy should specify a clear process and channel for notifying clues (of suspicious activities) or complaints, and measures to prevent those who have provided a clue or filed a complaint from persecution, intimidation or negative impacts, as well as the destruction of evidence.

5.7.2 Those responsible for receiving clues or complaints, and channels for providing that information must be clearly specified, by taking into consideration the confidentiality of information to ensure that those who have provided a clue or filed a complaint are under protection and that the resolution process cannot be intervened, such as the clue or complaint must be submitted directly to the chairman of the audit committee, or independent director, or the head of internal audit function.

5.7.3 An effective process after the clues have been provided or complaints have been filed must, at least, cover the gathering of facts, information processing and screening, determination of the composition of resolution committee, consideration timeframe, punishment measures, compensation measures for affected parties, reporting of consideration results and the implementation of measures to the audit committee or the board of directors.

5.7.4 There must be the communication of whistleblowing policy, procedure, and channels to all staff members.

5.8 Internal control

To ensure that the financial institution can monitor and control losses and errors that may occur promptly, the financial institution must, therefore, have effective internal control, which cover, but not limited to, the following matters:

5.8.1 Internal control and audit policies

5.8.2 Assignment of duties, responsibilities, and clear delegation of duties, which include:

https://dict.longdo.com/search/persecution

https://dict.longdo.com/search/intimidation


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(1) The preparation of written delegation of duties and responsibilities from the board of directors, where it must specify the clear scope of delegation as well as limitations on the exercise of power under such delegation. The board of directors must be aware that even though the board has delegated the power to the committees or senior executives, the final responsibility is, still, that of the board.

(2) There must be sufficient monitoring system to ensure that any activities of the financial institution are performed by those who have direct duties and responsibilities as delegated. There should also be the immediate report of any significant action taken beyond direct duties and responsibilities to the board of directors whenever the action takes place.

5.8.3 Check and balance mechanism, which includes:

(1) There must be a verification process for each and every process and significant processes in order to reduce operational errors and risk, where all activities throughout any process must not be under responsibility of only one person, while there must be clear segregation of duties, especially between front office and back office.

(2) There must be the effective three lines of defense structure, where the units responsible for control, compliance and audit functions must be independent and can effectively perform their duties. And, there must be clear assignment of each unit’s duties and responsibilities, covering business or first line of defense units, second line of defense units – such as risk management unit, compliance unit, credit review unit, and third line of defense unit or internal audit unit in order to promote the check and balance mechanism. In addition, the financial institution shall comply with the Policy Statement of the Bank of Thailand Re: Internal Audit Functions of Financial Institutions, and the Policy Statement of the Bank of Thailand Re: Compliance Functions of Financial Institutions.

On this, control units, such as risk management, compliance unit, internal audit unit, must effectively and independently perform their duties, where the internal audit unit must have reporting line directly to the audit committee and the board of directors, while the risk management unit and compliance unit should have reporting line to the oversight board/committee, such as the board of directors or risk oversight committee or other committees composed of members of the board of directors, apart from the direct reporting line to the manager or highest-ranking executive.


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In addition, the board of directors must approve the appointment, relocation and dismissal of the head of risk management unit and head of internal audit unit, and, then, notify such arrangements to the Financial Institution Applications Department, Financial Institutions Policy Group, Bank of Thailand, within 15 days from the effective date. As deemed appropriate, the board of directors may delegate other committee to perform this on its behalf.

(3) There must be the regular review of check and balance mechanism and segregation of duties between units or responsible persons.

5.8.4 Business units, control units, and operating units must be equipped with resources and staff members who have sufficient and appropriate expertise, competence and experiences to perform their duties in order to ensure the effectiveness and efficiency of their responsible functions. The heads of control units, such as the head of risk management unit, head of compliance unit, and head of internal audit unit, must hold the sufficiently senior positions or status to ensure the effective check and balance mechanism.

5.8.5 There must be a system for reporting any violation of laws, regulations or internal guidelines of the financial institution so that directors and senior executives can monitor or resolve the issues to avoid any significant losses or damage to financial institution’s business.

5.8.6 There must be the control relating to accounting and record keeping for all activities of the financial institution, while financial records and related documents must be prepared and kept. And, there must be accounting and financial reporting system to indicate actual financial conditions and business performance of the financial institution. Such financial information must be disclosed to shareholders, depositors and the public for their acknowledgement and verification purposes. On this, the board of directors must have relevant knowledge and understanding to ensure the accuracy of accounting.

Furthermore, the accounting and financial reporting system must be able to provide accurate, timely and sufficiently detailed information relating to financial conditions, operating performance and risks facing the financial institution. The reports must be regularly prepared or can be prepared when requested to ensure the effective business management and oversight of the business operations, as well as for the submission of data to the supervisory agencies. The financial institution should sufficiently keep financial records, related information and documents for examination, and the time period during


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which such information/documents are kept must be in compliance with relevant laws and regulations, and they must be kept in the format that can be used as legal documents and easily usable.

5.8.7 There must be asset safeguarding measures, where the financial institution must put in place appropriate and sufficient control systems to safeguard areas and resources of the financial institution as well as the assignment of the rights to access sensitive areas, such as dealing room or computer server space – only those who actually need to access such areas are allowed, to reduce the likelihood of unauthorized transactions or frauds. The access to sensitive assets, such as cash or securities, should be under dual control and the access must be appropriately recorded for examination. In addition, the financial institution should deploy appropriate tools to safeguard its areas and assets, such as using fire-resistant safes.

5.9 Disclosure of corporate governance data

To ensure that the stakeholders of the financial institution have sufficient and appropriate important information to decide if they should invest in or enter into transactions with the financial institution, which will promote the transparency in business operations and fair treatments, the financial institution must, therefore, disclose the following data:

5.9.1 Disclosure of information at the shareholders’ meeting

At the annual shareholders’ meeting, in addition to the general agenda, the financial institutions must also announce or present the following matters to the shareholders:

(1) Benefits and remuneration packages for directors:

(1.1) For non-employee directors – to be disclosed on an individual basis

(1.2) For employee directors – the disclosure shall be divided into 2 parts as follows:

(1.2.1) Benefits and remuneration packages received as the directors – to be disclosed on an individual basis; and


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(1.2.2) Benefits and remuneration packages received as the employees of the financial institution – to be disclosed on the basis of aggregate amount (as deemed appropriate)

(2) Benefits and remuneration packages for managers, persons with power of management, or other executives not appointed as directors – to be disclosed on the basis of aggregate amount (as deemed appropriate)

(3) Directorship held in other companies of directors, managers, persons with power of management and advisors who act as directors, managers, persons with power of management

5.9.2 Disclosure of information to the public

A financial institution must disclose the following information to the public in its annual report. If any financial institution does not release an annual report, it shall disclose the information on its website, and the information must be updated at least once a year.

(1) Organization chart - by specifying the names and positions of persons with power of management, head of risk management unit, head of compliance unit, and head of internal audit unit

(2) List of top-10 major shareholders or groups of shareholders, number of shares, and shareholding ratios

(3) Number of the meetings of the board of directors and the committees to be set up according to the Bank of Thailand’s guidelines, namely the audit committee, risk oversight committee, nomination committee, and remuneration committee, and number of times that each member of the board/committee participates in the meetings

(4) Lists of the members of the board of directors and the committees to be set up according to the Bank of Thailand’s guidelines, namely the audit committee, risk oversight committee, nomination committee, and remuneration committee – by specifying if a particular board member is executive director, non-executive director or independent director, as well as the scope of duties of each committee

(5) Oversight report of the audit committee


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(6) Duties of the audit committee, as well as any change in the composition that may affect the execution of the committee’s duties

(7) Policies and detailed process for the selection of directors and persons with power of management

(8) Dividend payout policy

(9) Remuneration policy, as well as factors used for the evaluation of the overall operating performance, targets and operations, as well as opinions of the remuneration committee, and risk-based remuneration approaches or tools (if any) – disclose only the remuneration policies for directors, persons with power of management and important risk-taker units/persons

(10) Data relating to supervisor-imposed fines, namely fines imposed by the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission – disclose the total amount of fines and significant fines due to the violation of particular section of laws/regulations; for fines due to unfair market conduct, the financial institution shall comply with the Bank of Thailand Notification Re: Guidelines on Market Conduct

5.10 Duties and responsibilities of senior executives

Senior executives shall have duties and responsibilities to ensure that the financial institution reaches the targets as set out or approved by the board of directors as follows:

5.10.1 Strictly implement policies and business strategies, risk governance framework (including risk management policies and strategies as well as risk appetite), remuneration policy, and corporate governance policy approved by the board of directors throughout the entire organization. For foreign bank branches, they shall strictly implement the policies, strategies and risk governance framework approved by the branch-level committee or approved by their regional offices or those for the entire group (group-level policies).

5.10.2 Set out processes and systems as well as the arrangements to ensure that the financial institution can reach the targets according to the policies and strategies approved by the board of directors, which include the establishment of effective systems for managing the overall risk, and significant types of risk and strategic risk of the financial institution. The risk management system should cover practices and processes for identifying, assessing, controlling,


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monitoring and reporting significant risks of the financial institution, including the determination of risk limit, which must be in accordance with the specified risk appetite.

5.10.3 Build risk culture and communicate risk management policies and strategies, risk appetite and risk limit to all staff members so that they understand and are aware of the risks as well as their duties and responsibilities and risks that may arise in work processes. Senior executives shall also strictly oversee that all staff members comply with the specified policies, procedures, guidelines, and operating processes.

5.10.4 Control the risks of the financial institution to be at the appropriate and acceptable level, which is below the specified risk limit approved by the board of directors, in order to limit possible losses from business operations to be at the level that does not significantly affect the positions of the financial institution.

5.10.5 Report risk exposures, effectiveness and risk management framework, progress on the implementation of risk culture, as well as important factors and significant problems facing the financial institution to the board of directors and related committees regularly or once the issue is discovered so that they can take prompt action. Senior executives shall also ensure that such reports are accurate, complete, timely, and reflect risk profile, including the adequacy of capital and liquidity positions of the financial institution.

5.10.6 Set out appropriate command hierarchy or reporting line, as well as clear duties and responsibilities for each unit/function under that reporting line, which will promote effective and efficient risk management and the execution of compliance, control and audit functions. Senior executives shall also oversee that control units/functions can perform their duties professionally and independently, and are not under influence of business units. For foreign bank branches, they shall use command hierarchy or reporting line at the branch, regional, or group level to meet the above purposes.

5.10.7 Review risk management processes and systems, as well as risk limit regularly or as there is any significant incident that may significantly affect the stability of the financial institution, such as domestic or international financial crisis, the launch of new products, revisions of supervisory guidelines or requirements.


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5.10.8 Deploy staff who have sufficient knowledge, competence and understanding of financial techniques and relevant business operations that are required for performing risk management and internal control functions.

5.10.9 Support the board of directors in overseeing that persons with power of management have appropriate qualifications and competence in managing the financial institution’s business.

6. Transitory Provisions

6.1 For independent directors who have qualifications according to the Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions dated 9 July 2009 (B.E.2552) and been appointed before the effective date of this Notification, if they do not have qualifications as specified in Clause 5.2.3, they can, still, hold the positions but no later than 1 May 2022 (B.E.2565).

6.2 For directors, managers, persons with power of management and advisors who have been appointed as the directors of companies listed on the domestic and overseas stocks exchanges for more than 5 companies before the effective date of this Notification, they can, still, hold the positions, but they must fully comply with the guidelines as specified in Clause 5.2.4 (2) within 1 May 2022 (B.E.2565).

6.3 The requirement, according to Clause 5.3.3 (3), that at least one member of the board of directors must have knowledge or experiences in information technology - shall be in accordance with the guidelines as specified in the Bank of Thailand Notification Re: Guidelines on Supervision of Information Technology Risks of Financial Institutions. If any particular financial institution cannot comply with those guidelines, it may consult the Bank of Thailand on a case-by-case basis.

6.4 The requirement, according to Clause 5.4.2, that the risk oversight committee must be set up - shall come into effect from 1 May 2019 (B.E.2562). However, as the risk oversight committee is being set up, the risk management committee according to the Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions dated 9 July 2009 (B.E.2552) shall, meanwhile, be in charge for the duties of such committee.


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6.5 The requirement, according to Clause 5.9.2, that there must be the disclosure of relevant information to the public – the first disclosure must be for the data of the 2018 reporting period, and this first disclosure must be made within 30 April 2019 (B.E.2562).

7. Effective Date

This Notification shall come into effect as from the day following its publication in the Government Gazette.

Announced on 22 May 2018 (B.E.2561)

(Mr. Veerathai Santiprabhob) Governor

Bank of Thailand

Regulatory Policy Department Tel. 0 2283 6875, 0 2283 5311

Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved.


Questions – Answers on the Bank of Thailand Notification Re: Corporate Governance of Financial Institutions

Dated 22 May 2018 (B.E.2561)

No. Question Guided Answer

Definition of an executive director

1 According to Clause 5.1 that an executive director means “(1) A director who performs management functions in the capacity of a manager, deputy manager, assistant manager or any person with equivalent position but with different job title …”, if the chairman of the board of directors of a commercial bank that is a subsidiary of a foreign bank (subsidiary) is a senior executive of the overseas parent company, is that chairman considered an executive director?

The definition of an executive director according to this Notification will cover the positions and duties in a financial institution operated in Thailand. Therefore, in this case, it may be considered that the chairman of the board of director is not an executive director of the subsidiary. However, such chairman (director) is also not considered an independent director as he/she is a staff member of the parent company.

2 According to Clause 5.1 that an executive director means “… (2) A director who has duties and responsibilities to perform or participate in any management duties similar to an executive, including a director appointed as a member of the executive committee, where the executive committee, in this context, means the “management-level” executive committee”, is a person appointed as a member of the executive committee (management-level committee), not a member of the board of directors, considered an executive director? What are the reasons for this?

A member of the executive committee (management-level committee) who is not a member of the board of director is not considered an executive director according to the definition as specified in this Notification.

However, this person is considered a person with power of management as he/she has power and leading role in making a decision on the financial institution’s business management.



3 According to Clause 5.1 that an executive director means “… (3) A director who has the powers to commit the financial institution to any binding agreement, unless such signature is for those approved by the board of directors on a case-by-case basis and cosigned with other director(s)”, if a signatory director according to a company affidavit has never signed to commit the financial institution to any binding agreement, is this director, still, considered the signatory director?

A list of signatory directors, generally, appears on a company affidavit. But, if, any signatory director, in practice, is not responsible for signing to commit the financial institution to a binding agreement or signing only those approved by the board of directors on a case-by-case basis or occasionally and cosigned with other director(s), it may be considered that he/she is not the signatory director.

Definition of a senior executive

4 For a foreign bank branch, which, normally, has the flat organization structure, while the name of position may be different from a locally incorporated bank, what are the equivalent positions (for a foreign bank branch) for a manager, deputy manager, and assistant manager?

The following principles shall apply: 1. The highest-ranking executive of a foreign

bank branch (country manager) is equivalent to a “manager”.

2. A person who can act as the person according to 1. is considered holding the position equivalent to a “deputy manager”

3. The positions that may be considered equivalent to an “assistant manager” are: - An executive who is responsible for more

than 1 department or 1 function e.g. an executive responsible for both personal loan and credit card departments

- A key executive – even though he/she is responsible for only 1 department, but such department is a key function of the foreign bank branch Should a foreign bank branch has any

further inquiries, it may consult the Bank of Thailand on a case-by-case basis.



Independent director

5 Since this Notification does not have the clause “Nonetheless, as the appointment of independent directors to serve on the executive committee, which is a subcommittee, creates an effective check and balance system, the Bank of Thailand concurs with the principle of the Office of the Securities and Exchange Commission which allows independent directors, subsequent to being appointed as independent directors as stipulated, to be appointed by the board of directors to participate in the management decision in the form of collective decision”, as specified in Clause 5.6 of the Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions, what is the due date that the Bank of Thailand, according to this Notification, will allow to consider an independent director who serves as a member of executive committee the (eligible) independent director?

An independent director who has been appointed as a member of the executive committee (management level) that makes a decision on a collective basis, and has qualifications for serving as an independent director according to the Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions before the effective date of this Notification can, still, hold the position (as an independent director) and serve as a member of the executive committee that makes a decision on a collective basis until 1 May 2022 (B.E.2565) according to the transitory provisions (Clause 6.1). Those to be appointed as an independent director after 1 May 2022 (B.E.2565) must have qualifications as specified in this Notification.

Involvement in other organizations of directors, managers, persons with power of management and advisors

6 According to Clause 5.2.4 (1) that “a director, manager, person with power of management or advisor can serve as the chairman of the

Non-profit organizations or government entities are not considered “business groups” according to this Notification. However, if the holding of positions in other organizations


No. Question Guided Answer board or/and executive director for no more than 3 other business groups, apart from his/her position in the financial institution. If any company does not have a business group, that company, itself, will be considered to be the business group”, what should be the practices if a director, manager, person with power of management or advisor is appointed as the chairman of the board or executive director of non-profit organizations or government entities?

affect the execution of duties he/she serves for the financial institution as a director, manager, person with power of management or advisor, the Bank of Thailand may require any other arrangements.

7 What are the practices for counting “business groups”, according to Clause 5.2.4 (1) of the Notification, for companies acquired by a financial institution from debt restructuring?

Companies acquired from debt restructuring shall be counted as the business group within the financial institution’s business group, but treated separately from the financial institution (not the same entity), as follows:

Counting of business groups

Group 1 Group 2 Group 3

Mr A FI

Mr B FI Companies within the FI’s financial business group or companies acquired from debt restructuring



Cross evaluation

8 According to Clause 5.3.1 (2.5) of the Notification that the board of directors must oversee that there is cross evaluation, what is the meaning of cross evaluation?

Cross evaluation is an approach that a particular director evaluates the performance of other directors, which may be as follows:

- A particular director evaluates other directors’ performance individually.

- All directors except the chairman evaluate the chairman’s performance, while the chairman evaluates the performance of each individual director.

The board of directors’ meetings

9 According to Clause 5.3.2 (4) of the Notification that directors must, at least, participate in no less than 75% of the board of directors meetings that have been arranged each year, over the period that the directors hold their positions, unless with reasonable grounds or necessity, can the directors participate in the meeting through electronic media?

The number of times that a director participates in the meeting includes the participation in the meeting through electronic media as deemed necessary and appropriate. As a financial institution arranges the meeting through electronic media, there must be the risk control, especially data confidentiality, protection of customer data. In addition, the financial institution must have a process for verifying the participation in the meeting and ensure that the board of directors’ meeting comply with other related laws e.g. quorum requirements according to the Public Limited Company Act.

Composition of the board of directors

10 According to Clause 5.3.3 (3) of the Notification that there must be at least one member of the board of directors who has IT knowledge or experiences, if the member of the board does not have IT qualification but has IT management experiences, is this member of the board

In determining if any member of the board has IT knowledge or experiences, a financial institution may consider if such member has IT-related education or has IT-related work experiences e.g. he/she had been appointed as a member of the IT steering committee in other organizations. If a financial institution is uncertain if the member of the board qualify


No. Question Guided Answer considered to have IT knowledge or experiences according to this Notification?

or not, it may consult the BOT’s examiners on a case-by-case basis.

Risk management committee

11 Since this Notification requires a financial institution to set up the risk “oversight” committee, is the financial institution, still, required to set up the risk “management” committee according to the Bank of Thailand Notification No. FPG. 13/2552 Re: Corporate Governance of Financial Institutions?

This Notification emphasizes the duties of financial institution’s directors relating to risk oversight, it, therefore, requires that the financial institution must set up the risk oversight committee (oversight level) to support the risk oversight duties of the board of directors, and give suggestions to the board of directors relating to the overall current and future risk management. To decide whether the risk management committee (management level) must be set up or not, it will depend on judgement, needs, and business structure of each financial institution.

Disclosure of supervisor-imposed fines

12 According to Clause 5.9.2 (10) that a financial institution must disclose data relating to supervisor-imposed fines, namely fines imposed by the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission, and where the total amount of fines and significant fines due to the violation of particular section of laws/regulations must be disclosed, what are the guidelines for this disclosure?

A financial institution shall disclose supervisor-imposed fines as follows: 1. Total amount of fines imposed by

supervisors each year, classified by supervisor (the Bank of Thailand, the Office of the Securities and Exchange Commission, and the Office of the Insurance Commission)

2. Total amount of fines for the violation of each section of laws – only top-3 amounts of fines imposed by each supervisor, classified by supervisor and section of laws

3. Number of times fines are imposed for the violation of each section of laws – only top-3 number of times fines are imposed by each supervisor over the 5 year period (or as they are available if any particular


No. Question Guided Answer financial institution has data for less than 5 years on the effective date of the Notification), classified by supervisor and section of laws

4. Fines due to unfair market conduct according to the Bank of Thailand Notification Re: Guidelines on Market Conduct

to managers - bank of thailand · to managers all financial institutions no. rpd.(01)c. 66/2561 re:...

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