The Bank of Thailand (BOT) is consulting on repositioning the financial sector for a sustainable digital economy and has set out the underlying principles and policy directions in for this. The repositioning of the financial sector should strike the right balance between promoting innovation and managing risks as well as allowing for flexibility in dealing with abrupt changes. BOT expects the financial sector to leverage on technological advancement, facilitate the transition of businesses and households in adapting to a digital economy, effectively manage environmental risks, and be resilient to significant and emerging risks. BOT invites comments and suggestions on the consultation by February 28, 2022.
The consultation provides key policy directions, in the following areas, for repositioning the financial sector:
- Leveraging on technology and data to drive innovation and better financial services through open competition, open infrastructure, and open data. Open competition involves an expansion of business scope, more flexibility in business operations of both bank and non-bank financial institutions, and setting up of virtual banks to stimulate competition. Open infrastructure aims to allow more players with access to the key infrastructure at fair and reasonable costs. Key infrastructure includes the payment systems, the retail central bank digital currency, and the credit guarantee mechanism suitable for diverse funding needs. Open data aims to allow consumers to conveniently share their data stored at one service provider with other service providers for their own benefits under the Open Banking initiatives and to connect financial sector’s databases with other sources for better analytics and development of financial innovations and services.
- Managing the transition toward sustainability by steering the financial sector to incorporate environmental risk assessment into their business operations and to support the transition of businesses away from environmentally unsustainable activities without disrupting the economy. The financial sector has an important role to play in facilitating households and vulnerable groups to adapt to the new, evolving economy. The financial sector should facilitate the households, particularly vulnerable groups with high debt burden or those lacking financial and digital literacy, to adapt sustainably. Actions include ensuring responsible lending, putting in place a holistic debt resolution mechanism, and encouraging risk-based pricing. On top of this, the financial sector should help promote financial and digital literacy to ensure sound financial behaviors of households and to raise awareness about new financial frauds.
- Adopting a more flexible approach on supervision that will enable financial service providers to adapt, innovate, and effectively manage new types of risks. Risk proportionality framework will be applied to a wider range of financial service providers and adopt a combination of a rule-based approach to set standards or minimum requirements and a principle-based approach that enables service providers to adopt risk management processes suitable to their risk profiles. Furthermore, regulatory impact assessment will be carried out to lessen excessive regulatory costs on the financial service providers. A non-disruptive license revocation mechanism needs to be in place for service providers that do not conduct businesses in an appropriate manner. Moreover, it is important to focus on effective regulations pertaining to systemically important players in order to reduce systemic risks, which could threaten overall financial stability, depositors, and financial service providers. For instance, risks to financial and payment system stability posed by digital assets and risks of new business models of banking groups will need to be addressed.
Keywords: Asia Pacific, Thailand, Banking, Regtech, Fintech, Open Banking, Sustainable Finance, ESG, Proportionality, Lending, Risk-based Pricing, Digital Banking, Open Data, BOT
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