​​​​​​​​Financial Institution Supervision in Practice

1. To strengthen the stability of the financial Institutions (Micro – prudential) : in order to provide careful management system together with decent risk management system by stressing importance on policy, hold on to and set up regulations in tune with international standards.
2. To oversee the stability of the financial Institutions' and economics' systems (Macro - prudential) for the equilibrium of economy, in some areas, through financial Institutions' supervisory measures.
   
3. To promote efficiency of the financial Institutions : in order to look after the proper level of competition and to supervise without impacts to such efficiency.
   
4. To encourage good governance to the financial Institutions : in order that the directors and employees would be responsible for duties of care and loyalty.
   
5. To protect customers and financial services' users (Fairness & consumer protection) : so that the financial Institutions would recognize the fundamental rights and responsibilities of their customers.​
   

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 Consolidated Supervision

1.1  Commercial banks registered in Thailand

• Commercial banks
• Retail banks  
• Subsidiaries of foreign bank   

1.2  Foreign bank branches
1.3  Finance companies
1.4  Credit foncier companies

2.  Foreign Financial Institution Representative Offices

3.  Asset Management Companies                 

4.  Non - banks

• Credit card companies             
• Personal loan companies 
• E-Payment business 

5. Service Providers under Payment System Act

6. Foreign Means of Payment Businesses

Examined by the Bank of Thailand as appointed by the Ministry of Finance

1. Specialized Financial Institutions
2. National Credit Bureau ​

1. Onsite Examination is classified into 3 categories as followed:

• Annual exam is to evaluate risks from significant activities (SA) of the financial instutions as well as to evaluate the capital adequacy, earning capability and corporate governance. Annual exam might be conducted as site visit when no significant issues found or it is insignificant to the financial system.
• Ongoing exam is to conduct the examination and/or site visit when significant issues are found, especially the issues which need close monitoring.
• Thematic exam is to evalutate the specific transactions/activities which are significant to the financial system or to the economy. The exam would be conducted at several financial institutions in the same period of time.

2. Monitoring and Analysis

• Ongoing reviews and analysis of individual financial institutions' financial condition as well as  performance and stability of financial institution system by applying financial analysis and risk management techniques based on forward-looking supervision approach.
• Close monitors of performance and risk profile of financial institutions' significant activities including firms under their financial groups (Consolidated Supervision) in order to assess the extent to which financial institutions are negatively affected by current events. Peer comparison is also taken into consideration.
• Evalute Early Warning Indicators to identify the significant risks which pose to the financial institutions, thus preventive measures or early interventions can be implemented to mitigate the risks.
• Set out Supervisory Plan to closely monitor financial condition and risk of financial institutions as well as to follow up the remedial actions​
  

Risk assessment process is begin with the understanding in business model and risk profile of the financial institution to be able to identify significant activities (SA) which can affect the financial condition, performance, strategy and management, based on risk-based supervision approach. Significant activities can classified into 3 categories as follows:

• Line of Business, namely, corporate loan, SME loan, retail loan
• Institution-wide Process, for example, Treasury, IT Operation, Asset- Liability Management, Strategic planning
• Business Unit or Subsidiary

Risk assessment of each SA is considered Inherent Risk (IR) and Quality of Risk Management (QRM) of each SA to ensure the achievement in the standards and best practices in its activities. QRM would examine the ability to manage and control IR, both in Day to Day Operation and Oversight Function. Oversight Function assesses 6 perspectives - Board, Senior Management, Risk Management, Compliance, Internal Audit and MIS.
Net Risk of each SA is the residual risk after adjusted IR by QRM. When accumulate the Net Risk of all SAs, Overall Net Risk of financial institution is reflected. Composite Rating of financial institution is then assessed after considered capital adequacy, earning capability and goverance, in addition to Overall Net Risk. The figure below illustrates the risk assessment process.

Prior to 2016, market conduct risk was part of regular supervision.  In October 2016, Financial Consumer Protection and Market Conduct Department was set up to ensure that new standards of effective market conduct management practices is achieved so as to not only resolving prevailing consumer protection problems effectively but also preventing new misconducts that may arise.

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• Supervise the operations of financial institutions to ensure their compliance with relevant banking laws and regulations
• Grant approvals or waivers to financial institutions
• Issue licenses for financial institutions under the supervision of the Bank of Thailand
• Clarify supervisory policies, rules and regulations to financial institutions
  

​Supervision Group (SVG) is responsible for prescribing financial institutions with weak financial conditions to remedy or amend such problems within the given period of time. Such measures must be approved by the Financial Institution Examination Development Subcommittee and/or Financial Institution Policy Committee before notifying the financial institutions and will be followed-up by Relationship Managers in charge of that financial institutions.

When financial institutions conduct their business non-compliance with laws or regulations, the issues found will be presented to Legal Enforcement Pre-Screening Group to consider measures for financial institutions and/or managers. Such measures must be approved by the Legal Enforcement Committee before taking legal actions. For non-bank, when the non-compliance with laws or regulations are found, Legal Department will handle any necessary actions.

Planning and Performance Monitoring

In order for the SVG to perform its core functions so as to meet the given objectives and to efficiently manage its resources, action plans are developed and approved by SVG executives to support strategic objectives of the Bank of Thailand as well as SVG core functions every year. One of the plans being developed every year is an annual onsite examination plan which in turn, is tailored based on an institution's overall risk profile. The performance on an onsite examination will be monitored on a monthly basis for the entire examination process. In case there are any significant changes to the performance of financial institution, such onsite examination plan may be adjusted to reflect such changes.

Human Resources Management          

As examiners are being considered as a key success factor in achieving SVG objectives, a serious emphasis is therefore given to the training and development of examiners. The SVG not only provides a standardized comprehensive training program but also routinely hosts topical seminars and invites leading experts from throughout the world to speak on a range of cutting edge supervisory issues.  Examiners who meet specified qualifications and have completed the comprehensive training program arranged by the School for Examiners are designated as Commissioned Examiners.

What is FSAP?

The Financial Sector Assessment Program (FSAP) is a joint program initiated by the IMF and World Bank in May 1999, with the aims to (1) identify the strengths and weaknesses of a country’s financial system, (2) assess a country’s compliance with the international best practices, (3) promote the financial system’s development as well as provide technical assistance needed, (4) specify risk management strategy and (5) help prioritize policy responses and strategic plans. 

 FSAP covers assessment of various issues in the financial sector, for example, banking, securities, insurance, monetary and financial policy transparency, payment and settlement systems, and anti-money laundering. The assessment comprises three main components, namely, (1) financial sector analysis, including analysis of efficiency, competitiveness, concentration, and liquidity, (2) macroprudential analysis, including stress testing, scenario analysis, and analysis of financial soundness indicators and macrofinancial linkages, and (3) assessment of observance to international standards and codes.

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