2006 Asian Roundtable on Corporate Governance CG Development in Thailand: the Three Disciplines Regulatory Discipline - Fostering Enforcement Mechanisms: The Regulatory Challenge Chalee Chantanayingyong Securities and Exchange Commission, Thailand Bangkok, Thailand September 13, 2006

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3 Presentation Overview  Overview: CG Development in Thailand  Enforcement: Difficulties & Measures  An Unfinished Agenda

Overview: CG Development in Thailand

5 CG: National Agenda in 2002 Subcommittee on Law Amendments and Enforcement Subcommittee on Accounting Standard Subcommittee on Best Practices of Listed Companies Subcommittee on Improvement of Corporate Governance of Commercial Banks, Finance Companies and Insurance Companies Subcommittee on Improvement of Corporate Governance of Securities Companies Subcommittee on Investors Education and Public Relations and on Corporate Governance in Thailand Chaired by Prime Minister

6 3 Pillars for Better Corporate Governance Regulatory Disciplines Market DisciplinesSelf Disciplines Good CG

7 Symptoms   CG culture Family-owned business and lots of related transactions Inadequate level of knowledge among directors   Investors activism Both retail and institutional investors are not active

8 Symptoms (Cont ’ d)   Enforcement Insufficient enforcement mechanism Insufficient enforcement mechanism Legal proceedings involve too many agencies Legal proceedings involve too many agencies Lack of understanding for capital market fraud among agencies Lack of understanding for capital market fraud among agencies

9 International View Points   World Bank Report: CG – ROSC Published: September 2005 Countries participated: 37 countries   ACGA + CLSA (Hong Kong) Report: CG Watch Published: annually (September-October) Countries participated: 10 Asian countries

10 CG – ROSC Source: CG-ROSC assessment of Asian countries during

11 (cont ’ d) CG – ROSC (cont ’ d) Overall assessment Significant corporate governance reforms have been introduced in recent years Thailand continues to make progress in improving corporate governance The reform agenda, however, remains incomplete Changes in the regulatory framework need to be translated into actual practices

12 (cont ’ d) CG – ROSC (cont ’ d) Recommendation – law enforcement Establish corporate governance enforcement priorities Improve enforcement for violation of laws Introduce administrative and civil sanctions

13 CG Watch (Oct. 2005) CountriesRules &Regulations EnforcementPolitical/ Regulatory environment Adoption of IGAAP Institutional mechanisms &CG culture Country score Singapore (1) Hong Kong (2) India (3) Malaysia (4) Taiwan (5) Thailand (6) Korea (6) Philippines (7) China (8) Indonesia (9)

14 (cont ’ d) CG Watch (cont ’ d) Thailand ’ s assessment during YearRules& Regulations EnforcementPolitical/ Regulatory Environment Adoption of IGAAP CG Culture Country score

Enforcement: Difficulties & Measures

Difficulties

17 Criminal Proceedings  Power of authorities SEC Police Public Prosecutor Court SEC does not have sole authority to proceed criminal crimes SEC does not have sole authority to proceed criminal crimes

18 Criminal Proceedings (cont ’ d)  Lengthy legal process Many steps and many agencies involved  long duration of process Many steps and many agencies involved  long duration of process  lack continuity Frequent rotation of officials  lack continuity  need knowledge and understanding of business activities Complicated cases  need knowledge and understanding of business activities  Problems in bringing offenders to justice Difficulties in proving criminal crime  need high standard of prove Difficulties in proving criminal crime  need high standard of prove Witnesses unwilling to get involved Witnesses unwilling to get involved

Measures

20 3 Steps Scheme The SEC ’ s alternative measures to strengthen enforcement power PreventionSanctionIntervention

21 I. Prevention  Review financial statements 100% review of auditors ’ report (quarterly & yearly financial statements) 100% review of auditors ’ report (quarterly & yearly financial statements) In-depth review for irregularities In-depth review for irregularities  Extensive monitoring of auditors 100% review of auditors ’ working papers of IPO companies 100% review of auditors ’ working papers of IPO companies Inquiry auditors for unclear or ambiguous messages Inquiry auditors for unclear or ambiguous messages

22 I. Prevention (cont ’ d)  Stringent monitoring of audit committee ’ s performance  Updating on “ connected transactions ” rule  Closely monitoring connected transactions

23 II. Intervention   Re-issuance of financial statements  Result: In 2004, 25 companies In 2005, 37 companies In 2006, 13 companies   For questionable RPT, top management needs to clarify  Result: In 2004, stopped 6 inappropriate transactions worth 3,000 million baht In 2005, stopped 1 inappropriate transactions worth 350 million baht In 2006, stopped 1 inappropriate transaction worth 180 million baht

24 II. Intervention (cont’d)   Share price manipulation On-site inspection of securities companies to break market rumour If there is rumour or leakage, listed company needs to clarify Closely monitor listed companies’ disclosure to prevent financial statement cosmetic

25 III. Sanction Besides the criminal proceedings, the SEC introduces an administrative proceedings to be an alternative tool  Introduction of “ Director Registration System ”  Appointment of “ Directors Responsibility Committee ”

26 What is Director Registry?  All listed + IPO companies have to register their directors and top executives in “ Director Registry ” through the SEC website  List of directors & top executives shown on the SEC website Whitelist

27 What is Director Registry? (cont ’ d)  Persons who conducted a malpractice e.g. breach of fiduciary duties or fraud or dishonest management are unqualified persons  SEC will “ remove ” such persons from whitelist to prevent any further damage to investors Blacklist

28 Director Registry: Result Whitelist ~ 8,000 persons Blacklist  126 persons * Corporate fraud  43 * Unfair securities trading  24 * Operating securities business without license  24 * Denounced by other regulators (BOT, SET)  35 Source: Director Registry System as of Aug 31, 2006

29 Directors Responsibility Committee  Objective  To provide check & balance mechanism  To provide check & balance mechanism  Duties  To advise SEC on sanctioning of directors  To advise SEC on sanctioning of directors  Composition  9 members comprising both regulators and business leaders  9 members comprising both regulators and business leaders

An Unfinished Agenda

31 An Unfinished Agenda  Public ’ s perception & expectation on enforcement power  Continuous training and education among enforcing agencies  Modernizing the range of regulatory enforcement power  Empowering investors with more efficient tools