Thai fund managers close in on self regulation

Some fund managers in Thailand feel the target of having a self-regulatory organisation (SRO) for the country's asset-management industry in place by early next year may be overly ambitious.

If it is to be achieved, the Association of Investment Management Companies (AIMC) and the Securities and Exchange Commission certainly have some busy months ahead, alongside an ongoing capital markets overhaul that will affect both fund managers and brokers.

The association has been in “heavy discussions” with the SEC in the first half of 2011 over which areas of the industry the SRO will start out supervising, says Sathapana Leoprapai, chief executive of the AIMC, who took over from Duangkamon Phisarn in January. For example, the board will take more responsibility on monitoring sales conduct and practice.

The AIMC and SEC are close to concluding the types of models that would be suitable after examining the set-ups in Korea, Malaysia and, to an extent, Australia. However, says Leoprapai, they need to spend more time studying the legal aspects, since an SRO must have consent from the entire industry, including fund management companies (FMCs) and private fund managers.

He is optimistic that the SRO will operating by the first quarter of 2012, but some fund managers are sceptical about this target date.

The SEC currently audits and fines FMCs, but now this function will be passed to the AIMC, says one senior fund-management executive. “This must be done very transparently,” he says. “Every asset-management firm needs to be treated fairly, and that's still a concern.”

Leoprapai has spent time this year visiting heads of the FMCs to explain the benefits of the SRO concept and providing information, since he says member firms will have to incur some costs and do more work before the board can be set up. He hopes to obtain consent from member companies and see them alter their Articles of Association, so that the SRO can start to operate.

The AIMC submitted its original proposal in late August 2008, only weeks before the collapse of Lehman Brothers in mid-September that year, and the original target date for an operational SRO had been the first half of 2012.

However, it has been no easy task given the moving parts involved, including AMCs, investors and regulators. For instance, Thailand’s Association of Provident Fund – which represents the interests of retirement funds – has flagged concerns that asset investors’ voices should be heard and noted by any SRO. (See the February 2010 issue of AsianInvestor magazine for a feature on the SRO plans.)

It is still yet to be finalised how the SRO board will be structured, but half or close to half of the 11-strong group will need to be independent, non-FMC directors elected by member firms rather than being drawn from member firms, as they are currently. In addition to the SRO board there will probably also be a board committee comprising mostly of independent directors, to which institutional or retail investors can report complaints.

The AIMC currently has around 12 employees, and Sathapana envisages that number doubling. “We are quite optimistic,” he says. “And as we are adding more responsibilities, we need to hire more staff.”

The association is interviewing candidates for the posts of head of the SRO and has just recruited a new head for its professional and investor education function. It will take a further six to 12 months to get everyone in place, along with new hardware and software, says Sathapana.