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Thailand’s SEC enhances liquidity risk control of mutual funds

Thailand’s regulator has issued liquidity risk management criteria and liquidity management tools for mutual funds to protect investors.

The Securities and Exchange Commission(SEC) said that asset management companies must prepare liquidity risk management guidelines with approval from their board of directors, and establish a system to support the use of liquidity management tools by the beginning of 2022.

“The issuance of liquidity risk management rules and liquidity management tools of mutual funds has made asset management companies improve the efficiency of their liquidity risk management processes, Ruenvadee Suwanmongkol, secretary- general of the SEC of Thailand, said in a statement.

“It provides a wide range of liquidity management tools and is sufficient to protect the interests of unitholders as a whole and reduce the likelihood of risks to the financial system,” she added.

The ruling follows a public consultation initiated by the SEC that ended in April.

The regulatory change was against the backdrop of the volatility in global bond and stock markets in March 2020, which was caused by the Covid-19 pandemic. The SEC said in a statement that since then many countries in the world have introduced measures to improve the liquidity risk management of mutual funds.

In future, risk management should be considered starting from the fund design process, include monitoring for systemic risk, and provide appropriate support plans to address potential liquidity impacts, the SEC said. Asset managers have until 1 January 2022 to comply with these new requirements.

Separately, the SEC also plans to overhaul the rules regarding the operating system of mutual fund management business in a major way.

The new regulation to guide the business operation of mutual fund will be more “principles- based”, which is more suitable for the current mutual fund business environment, said the SEC, in a statement.

Mutual funds will no longer be required to have at least two fund managers; instead, they can employ any number of fund managers they like as long as they can operate continuously without affecting the investment management of the fund.

SEC will also no longer require a set timeline for the receipt and delivery of assets to provide more business flexibility.

The total NAV of the Thailand fund industry was THB 5.3trn ($160bn) at the end of the second quarter in 2021, up 4.8% from the end of 2020, according to Morningstar Direct. The total NAV of Thailand equity funds was THB 1.5trn, a 20% increase from December 2020, narrowing the gap with fixed income to just THB60bn.

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