2006 Asian Roundtable on Corporate Governance CG Development in Thailand: the Three Disciplines

1. 2006 Asian Roundtable on Corporate GovernanceCG Development in Thailand: the Three Disciplines Regulatory Discipline - Fostering Enforcement Mechanisms: The Regulatory Challenge Chalee Chantanayingyong Securities and Exchange Commission, Thailand Bangkok, ThailandSeptember 13, 2006

2. Welcome to Bangkok

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

4. Overview: CG Development in Thailand

5. CG: National Agenda in 2002 Chaired by Prime Minister 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

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

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 • Legal proceedings involve too many 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 2001-2005

11. 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. 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)

14. CG Watch (cont’d) Thailand’s assessment during 2001-2005

15. Enforcement: Difficulties & Measures

16. Difficulties

17. Criminal Proceedings • Power of authorities Public Prosecutor Court Police SEC • 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 • Frequent rotation of officials lack continuity • 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 • Witnesses unwilling to get involved

19. Measures

20. Prevention Sanction Intervention 3 Steps Scheme The SEC’s alternative measures to strengthen enforcement power

21. I. Prevention • Review financial statements • 100% review of auditors’ report (quarterly & yearly financial statements) • In-depth review for irregularities • Extensive monitoring of auditors • 100% review of auditors’ working papers of IPO companies • 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. Whitelist 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

27. Blacklist 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

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

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

30. 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