The Bank of Thailand (“BOT”) is committed to further easing foreign exchange regulations in order to foster the development of a new foreign exchange ecosystem in Thailand and to address the fundamental issues in the foreign exchange market in Thailand. These new regulations are mainly aimed at encouraging more capital movements, allowing greater flexibility in the conduct of foreign exchange transactions, as well as reducing unnecessary costs and processes to better deal with long-term global volatility. To achieve such bold goals, the BOT announced the new foreign exchange regulations in April 2022, which can be summarized in the following key points:
- Removal of restrictions on domestic and cross-border transfers
With respect to domestic transfers, previously a resident was only permitted to transfer foreign currency to another resident through a foreign currency deposit account (“FCD”). However, the new regulations allow a resident to purchase or withdraw foreign currency from a FCD to pay another resident who does not have a FCD in the normal course of business or as necessary for business to be conducted in foreign currency. foreign, such as payment for goods or services in the supply chain; provided that the purpose of such domestic transfer does not require BOT approval (e.g. payment associated with digital assets) and that such foreign currency payment is not made in cash.
For outward fund transfers, limits for certain outward fund transfer purposes have been removed, such as the limit for loans to unaffiliated entities, which was previously capped at $50 million per year; and the real estate purchase limit, which was previously capped at USD 50 million per year. In addition, the BOT has added some outward fund transfer purposes that will not require its approval, such as repayment of loans that are not transferred to Thailand; and the deposit of funds in the sender’s account opened in a foreign country.
- Reduced documentation requirements when conducting foreign exchange transactions
Under the new regulations, supporting documents would not be required for certain transactions, regardless of the amounts involved, but only when commercial banks have carried out the “Know Your Business” process on their customers. In this case, the types of transactions that will not require supporting documents will include, among others, currency hedging, the purchase of foreign currency and the withdrawal of foreign currency from an FCD.
Therefore, customers who have not followed the said “Know Your Business” process would be subject to the regulations in force, i.e. they are still required to provide supporting documents to commercial banks to carry out foreign exchange transactions in excess of USD 200,000.
- Relaxation of regulations on investments in foreign securities
The new exchange rules applicable to investments in foreign securities are more flexible and attractive. For example, a resident is now allowed to pay in foreign currency for investment products, such as private equity or venture capital investments; and payments for life insurance products, such as savings life insurance, unit-linked life insurance or universal life insurance issued and distributed overseas or domestically.
In addition, under the new regulations, an investor may apply for a foreign currency loan from a commercial bank to pay for an investment in foreign securities, provided that the commercial bank can review the related documents to its satisfaction and require the signing a loan/credit facility agreement.
Overall, the relaxation of foreign exchange regulations under the new BOT forex ecosystem comes in response to increased volatility in global markets, particularly in the foreign exchange markets, and helps to facilitate the balance of outflows and inflows of capital into the market. In addition, some aspects of the new regulations will reduce operational costs and reduce the administrative burden on traders as they require less or no documentation for certain foreign exchange transactions. This would eventually help Thai investors (both retail investors and SMEs) to access foreign exchange services more easily and efficiently.
These new regulations were published in the Official Gazette of the Government of Thailand on May 12, 2022 and came into force on May 13, 2022. The BOT also announced the guidelines for commercial banks to implement these new measures. So, investors trading forex in Thailand should be aware of these new foreign exchange policies and regulations and be prepared for the new change.