Notification of the Bank of Thailand No. FPG. 9/2553 Re: Guideline for Appointing Banking Agents

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1 1. Objectives Unofficial Translation This translation is for the convenience of those unfamiliar with the Thai language Please refer to Thai text for the official version Notification of the Bank of Thailand No. FPG. 9/2553 Re: Guideline for Appointing Banking Refer to the Bank of Thailand s Notification No.: SorNorSor. 43/2551, Re: Guideline for Outsourcing in Financial Services dated 3 August 2008, which incorporated the guideline for appointing banking agents. In this Notification, the Bank of Thailand ( BOT ) amended the guideline on appointment of banking agents by separating the guideline on appointment of banking agent from that of outsourcing in financial institution business. The BOT aims to clarify that the appointment of banking agent is principally for increasing a financial institution s customer service channels, whereby outsourcing is intended to save cost and boost efficiency of financial institution business through hiring external service providers to be in charge of whole or part of some functions of the financial institution. The BOT also expanded the scope of outsourcing of a commercial bank for the benefit of the financial institution system and the consumers as a whole. Note that notwithstanding the employment of banking agents to perform certain financial services to customers, a financial institution is still accountable for the customers as if it were the service provider. 2. Statutory Power By virtue of Section 36, Section 39, Section 41, and Section 47 of the Financial Institutions Businesses Act B.E. 2551, which contains some provisions restricting the rights and liberties of an individual set forth in of Section 29 together with Sections 31, 33, 36, 39, 41 and 43 of the Constitution of the Kingdom of Thailand, which was endorsed in the enactment of this law, the Bank of Thailand, hereby, issues guideline for appointing banking agent as prescribed herein. 3. Scope of Application BOT Notification No 9/2553 (4 September 2017)-check Page 1 of 14

2 This Notification applies to all commercial banks and finance companies under the law governing financial institutions businesses. 4. Repeal of Notifications and Circulars The Notification of the Bank of Thailand No.: SorNorSor. 43/2551 Re: Regulation Regarding Outsourcing in Financial Services dated 3 August 2008 shall be repealed. 5. Content 5.1 Principle With an objective to expand service channels for the benefit of the general public as well as financial institution system, the BOT already permitted a financial institution to appoint other financial institutions, Thailand Post Company Limited, and remittance service providers as banking agents in order to provide financial services to clients in the last guideline issued in At this juncture the BOT deemed appropriate to amend the guideline as follows: (1) The scope was extended to allow specialized financial institutions to become a banking agent of a commercial bank. (2) The scope was extended to allow banking agents to expand their scope of bill payment services to cover utility payments as well as payments for other goods and services, in addition to payments to financial institutions like loan payments or credit card payments. (3) The guideline was revised to enhance clarity. 5.2 Definitions Under this Notification, Financial Institution, Commercial Bank, and Specialized Financial Institution mean financial institution, commercial bank, and specialized financial institution respectively defined in Section 4 and Section 119 of the Financial Institutions Businesses Act B.E In this Notification, Financial Institution shall exclude credit fonciers. Banking Agent is defined as a juristic person appointed by a financial institution to act on that financial institution s behalf to provide financial services to clients under the BOT guideline and conditions of approval. The Banking Agent under this definition does not include Non-Performing Asset Management Agent, BOT Notification No 9/2553 (4 September 2017)-check Page 2 of 14

3 which is bound by the outsourcing regulation which is a separate regulation from this Notification. Paying Agent is defined as a financial institution s representative responsible for transmitting payments in cash or by cheques for goods or services under mutually agreed terms and conditions. Payment Accepting Agent means a financial institution s representative responsible for accepting payments of obligations from loans, credit cards, utilities, goods and services. Thailand Post Company Limited ( Thailand Post ) is defined as a joint venture company that maybe mutually set up by Thailand Post Company Limited with one or more commercial banks. Outsourcing is defined as employment of an external service provider by a financial institution perform entire or part of some functions of the financial institution, with an objective to save cost or boost efficiency of financial business operations. Electronic Payment Accepting Agent is defined as a service provider under List Kor in the appendix of the Royal Decree Re: E-Payment Business B.E. 2551, and its amendments thereafter. The Electronic Payment Accepting under this Notification shall mean only Over-The-Counter Electronic Payment Accepting according to Item (5) of List Kor, provider of electronic payment service via any equipment or via network according to Item (3) of List Kor, and E-Payment according to Item (6) of List Kor, which are not a commercial bank or Thailand Post. 5.3 Contents Criteria of appointment of financial institution s banking agent are categorized into 2 groups, one for commercial banks and another for finance companies. (Refer to Attachment 1 for Summary of the Appointment Criteria). Nevertheless, the guideline of governance and information disclosure will be applicable for both types of financial institutions Appointment of Banking Agent by Commercial Bank A commercial bank may appoint the following 6 types of banking agent, none of which has the authority to open a bank account or approve credit or allow draw-down. a. Depository Agent: Only the following juristic persons are eligible to receive deposits on behalf of a commercial bank: (1) other commercial banks; (2) Thailand Post; and (3) Specialized financial institutions. BOT Notification No 9/2553 (4 September 2017)-check Page 3 of 14

4 b. Withdrawal Agent: A commercial bank may nominate only Thailand Post to perform this type of banking agency services. c. Fund-Transfer Agent: Only Thailand Post may be appointed by a commercial bank for this type of banking agents, whereby the commercial bank may transfer money to Thailand Post for paying to third parties. The reason that the BOT prohibits other juristic persons to become a fund-transfer agent is that, without adequate safety and system accuracy standards, the appointment of other juristic persons to be in charge of fund transfer may cause adverse effects to the public as a whole. d. Payment Accepting Agent: A commercial bank can appoint only the following juristic persons to act on its behalf in accepting payments: (1) other commercial banks; (2) Thailand Post; (3) electronic bill payment agents; and (4) specialized financial institutions. e. Paying Agent: A commercial bank can designate only the following juristic persons as paying agents: (1) other commercial banks; and (2) specialized financial institutions. A paying agent can only accept an order to pay from its principal (i.e. paying) customer, who may be a juristic person, institution, or small and medium enterprise, whereby the recipient can be any person or entity. If a commercial bank is to be appointed as a paying agent of another commercial bank, the commercial bank acting as a paying agent must have BOT s approval in accordance with the guideline for insourcing. f. Other Types of Banking Agent: Approval may be obtained from the BOT on a case-by-case basis Appointment of Banking Agent by Finance Company A finance company may appoint the 3 following types of banking agents, where none of which has the authority to open a deposit account or approve credit or allow draw-down. a. Depository Agent: A finance company can appoint only the following juristic persons as a depository agent: (1) commercial banks; and (2) other finance companies. b. Agent to Accept Loan Repayment: A finance company s agents to accept loan repayment can comprise only the following parties: (1) commercial banks; (2) Thailand Post Company Limited, which does not include a joint venture company mutually set up by Thailand Post Company Limited and one or more commercial banks; and (3) electronic bill payment agents. BOT Notification No 9/2553 (4 September 2017)-check Page 4 of 14

5 c. Other Types of Banking Agent: Approval may be obtained from the BOT on a case-by-case basis Guideline of Submission of Approval Request A financial institution has to abide by the following guideline of submission of request for the appointment of banking agents under Clauses and Type of Banking Type of Juristic Persons No BOT Approval or Notice Necessar y Appointment of Banking Agent by Commercial Bank 1. Depository Other Commercial Banks Thailand Post Specialized Financial Institutions 2. Withdrawal Thailand Post 3. Fund- Thailand Post Transfer 30-Day Advance Notice to BOT Only BOT Approval Required 4. Payment Other Commercial Banks Accepting Thailand Post E-Payment Accepting Specialized Financial Institutions 5. Paying Other Commercial Banks Specialized Financial Institutions 6. Other Types of Banking Case-by-case basis Appointment of Banking Agent by Finance Company 1. Depository Commercial Banks Other Finance Companies 2. Credit Commercial Banks Facility Thailand Post Payment Company Limited 1 Electronic Bill Payment 3. Other Types of Banking Case-by-case basis 1 Thailand Post Company Limited under this type does not include a joint venture company that maybe mutually set up by Thailand Post Company Limited and one or more commercial banks. BOT Notification No 9/2553 (4 September 2017)-check Page 5 of 14

6 a. Appointment of Depository, Withdrawal, or Fund-transfer Agent Generally Permitted by the BOT for Each Type of Financial Institutions (1) If a financial institution would like to nominate another financial institution or a specialized financial institution to be a depository agent, the appointing financial institution may proceed; no prior notice to or consent from the BOT is necessary. (2) If a financial institution would like to appoint Thailand Post to be a depository, withdrawal, or fund-transfer agent, the appointing financial institution has to submit a notice to the Financial Institution Applications Department, the BOT, 30 days in advance of the commercial commencement date of the banking agency service. Consent from the BOT is not required. b. Appointment of Payment Accepting Agent and Agent to Accept Loan Repayment Generally Permitted by the BOT for Each Type of Financial Institutions A financial institution can proceed to appointing a payment accepting agent or a agent to accept loan repayment; no prior notice to or consent from the BOT is necessary. c. Appointment of Paying Agent Generally Permitted by the BOT for Commercial Banks (1) If a commercial bank would like to designate another commercial bank as a paying agent, the appointing commercial bank and the appointed commercial bank (i.e. the paying agent) have to submit request for permission from the Financial Institution Applications Department, the BOT, simultaneously or almost simultaneously, so as to facilitate the BOT s consideration of both parties requests. (2) If a commercial bank would like to designate a specialized financial institution as a paying agent, the appointing commercial bank has to attain approval from the Financial Institution Applications Department, the BOT. In both aforementioned cases, the commercial bank has to clearly convey the rationale and provide the following information. - Clear policy, procedure, and operating workflow endorsed by a relevant committee or the senior executives for internal enforcement. - Risk appraisal and management system, service operations manual, procedures for transmitting paying order to the paying agent, internal control policy, verification of fund recipient s documents, safety measures, information security system, and contingency plan in case of the paying agent s inability to perform the services. BOT Notification No 9/2553 (4 September 2017)-check Page 6 of 14

7 - Written agreement illustrating type and description of the service, service operations workflow, scope of responsibilities, service fee calculation methods, internal control system, and information security measures for the appointing commercial bank and the end customers, as well as written contingency plan to back up in case that a paying agent cannot offer the services due to interruptions by the blackout or failure of the emergency electricity system, etc. The BOT shall inform the commercial bank in writing within 30 days after date of request submission, unless the BOT requests for further clarifications or documents. d. Appointment of Other Types of Banking The financial institution shall apply with the Financial Institution Applications Department, the BOT for approval on a case-by-case basis. The BOT may impose additional terms and conditions to the commercial bank as appropriate Rules of Governance of Financial Institution s Banking Agent In appointment of a banking agent, a financial institution shall comply with the following rules. a. Accountability to Customers Notwithstanding the delegation of authority to a banking agent and the banking agent s subcontracting of the service to a third party, the appointing financial institution still at all times remain accountable to its clients, as if the financial institution performed the service by itself. The appointment of an agent must not result in service standard deterioration or increased cost to end consumers. b. Policy and Procedures of Appointment of Banking Agent A financial institution must set up clear policy and procedures for the appointment of a banking agent, which shall contain the following details at minimum. (1) Risk management guidelines of the appointing financial institution, internal control process, and coordination system between the appointing organization and the agent to prevent potential threats e.g. money custody of the agent before transmitting to the appointing entity, credible and consistent examination and maintenance procedure of the service platform s security system, imposition of maximum limits of an agent s depository, withdrawal, and transfer services. (Examples of risks associated with the appointment of a banking agent are shown in Attachment 2.) (2) Transaction completion date and first date of interest calculation should be of the same standards as those of the appointing financial institution. BOT Notification No 9/2553 (4 September 2017)-check Page 7 of 14

8 agent. (3) Transaction confirmation document to be issued by the banking (4) Key terms and conditions of the agreement between the appointing financial institution and the banking agent. The above policy and operating framework must be approved by the financial institution s board of directors, who shall duly ensure the financial institution s adherence to such policy and framework. c. Information Disclosure (1) A financial institution has to disclose the following information to their customers. (1.1) The financial institution s appointment of banking agents e.g. list of nominated banking agents, list of transactions pertaining to appointment of each banking agent, terms and conditions of services, the financial institution s responsibilities to the customers, consumer protection policy, etc. (1.2) Potential impacts on the financial institution s customers from the appointment of the agents including but not limited to service fees and other changes that may negatively affect the clients. The financial institution has to announce such information to the customers in advance of service launching by each agent. (2) The financial institution has to ensure and monitor that its agents disclose the following information to the clients. (2.1) The agent s service insourcing from other financial institutions e.g. list of financial institutions of which that entity is a banking agent (i.e. list of appointing financial institutions), list of transactions under the banking agency services, service terms and conditions, accountability to the customers, consumer protection policy, etc. (2.2) Potential impacts on the appointing financial institution s customers from such appointment including but not limited to service fees and other changes that may negatively affect the clients. The banking agent has to announce such information to the customers in advance of its service launching. d. Other Additional Requirements Regarding Consumer Protection A financial institution must comply with at least the following additional consumer protection principles and assure its agents adherence to the rules. (1) Transaction Completion BOT Notification No 9/2553 (4 September 2017)-check Page 8 of 14

9 (1.1) Deposit Transactions: A customer s deposit transaction shall be considered complete, and a financial institution shall be deemed to accept the deposit upon the following events. (1.1.1) In the case of cash deposit, the deposit transaction shall be considered complete, and a financial institution shall be deemed to accept the deposit when the agent issues transaction confirmation to the depositor. (1.1.2) In the case of cheque deposit, the deposit transaction shall be considered complete, and a financial institution shall be deemed to accept the deposit when the agent issues transaction confirmation to the depositor, and the cheque is cleared. The deposit s interest earnings shall be calculated on the day the financial institution receives the deposit s good fund, whereby the financial institution has to clearly stipulate the cut-off time (i.e. the time before which the deposit transaction shall be considered complete on the same day as the day of transaction commencement) and clearly announce such time to its clients. In the case that a customer deposits his/her money after the cut-off time, the deposit transaction shall be considered complete, and the financial institution shall be deemed to receive the deposit, on the day following the transaction commencement day. (1.2) Payment Accepting Transaction: A customer s payment transaction shall be recognized as complete, and a financial institution shall be deemed to accept the payment upon the following events. (1.2.1) In the event that the customer pays in cash or via a debit card, the payment transaction shall be recognized as complete when the agent issues transaction confirmation to the customer. (1.2.2) In the event that the customer pays by cheque, the bill payment transaction shall be recognized as complete when the agent issues transaction confirmation to the customer, and the financial institution has fully received the good fund from cheque clearing (i.e. the cheque is cleared). The relevant credit liabilities, including but not limited to credit card obligations, utility expenses, or any other commitments to pay for other goods and services of a customer with a financial institution shall be settled on the day the financial institution receives the customer s good fund. The financial institution has to clearly stipulate the Cut-Off Time (i.e. the time before which the bill payment transaction is considered complete on the same day as the transaction commencement day) and clearly announce such time to its clients. In case that a customer puts in his/her money after the cut-off time, the bill payment transaction shall be considered complete on the following day. BOT Notification No 9/2553 (4 September 2017)-check Page 9 of 14

10 (2) Safety Standard for Consumers A financial institution must ensure appropriate safety measures of the banking agent for clients in all service venues including but not limited to the banking agent s service areas, branches, other service channels of the agent both areas owned and leased by the banking agent. e. Other Related Rules and Regulations (1) A financial institution must abide by the following rules. (1.1) The rule pertaining to outsourcing supporting functions to third parties under the BOT s Notification Re: Regulation Regarding Outsourcing in Financial Services. (1.2) The rule pertaining to information technology ( IT ) outsourcing according to related BOT s Notifications. (2) A financial institution has to ensure its banking agent s compliance with the guidelines, rules, and related laws including but not limited to Anti-Money Laundering and Combating the Financing of Terrorism: AML/ CFT. Additionally, in the event that a financial institution intends to employ its banking agent to perform services other than those mentioned in this Notification, the financial institution has to abide by the BOT s related rules and regulations and has to assure compliance by its agents as well. Such rules and regulations may include those regarding outsourcing in financial services, a commercial bank s insourcing of supporting functions of third parties, and a finance company s and a credit foncier s insourcing of supporting functions or other services of third parties. (3) In the event that a banking agent subcontracts all or part of the agency functions, the subcontractor has to be a juristic person permitted to perform such supporting functions by the BOT and also has to comply with the terms and conditions of this Notification and of the agreement between the banking agent and the appointing financial institution. f. Termination of Permission Subsequent to receiving approval, if a financial institution fails to comply with the BOT s rules and conditions, fails to operate in accordance with the information submitted to the BOT at the time of request for approval, or is found to conduct any action that may have material adverse effect to the general public s safety and peace or that may infringe consumer rights, the BOT may terminate the permission of banking agent appointment as a whole or on a case-by- BOT Notification No 9/2553 (4 September 2017)-check Page 10 of 14

11 case basis and/or amend the terms and conditions on case-by-case basis as appropriate Transitory Provision a. In the event that a financial institution has attained the BOT s approval to appoint an agent before this Notification comes into force, the financial institution can proceed with the employment of such banking agent without resubmitting the request for approval to the BOT and can abide by the terms and conditions endorsed by the BOT at such time, as long as those terms and conditions do not conflict with this Notification. Nonetheless, upon renewal of the agreement of banking agent appointment, the financial institution has to comply with this Notification. Should there be any queries, the financial institution is to consult the BOT on a case-by-case basis. b. In the event that a financial institution has nominated a banking agent of the type which the BOT s consent is required under this Notification but was not required under previous rules and regulations, the financial institution has to request approval from the Financial Institution Applications Department, the BOT, within 90 days from the date that this Notification becomes effective. 6. Effective Date This Notification is effective one day following the date of announcement in the Royal Thai Government Gazette. Given on 20 October 2010 (Mr. Prasarn Trairatvorakul) Governor The Bank of Thailand BOT Notification No 9/2553 (4 September 2017)-check Page 11 of 14

12 Attachment 1 Summary of the Bank of Thailand s Approval Criteria for Banking Agent Appointment Commercial Banks Types of Banking 1. Depository 2. Withdrawal 3. Fund- Transfer 4. Payment Accepting 4.1 Credit Liabilities including Credit Cards 4.2 Payment for utilities and other goods and services 5. Paying Finance Companies Types of Banking 1. Depository 2. Credit Facility Payment Accepting Types of Juristic Persons Specialized Thailand Post Financial Banks Institutions Other Commercial E-Payment Accepting Other Commercial Banks Types of Juristic Persons Specialized Thailand Post 2 Financial Institutions Electronic Bill Payment 2 Thailand Post Company Limited under this type does not include a joint venture company that maybe mutually set up by Thailand Post Company Limited and (a) commercial bank(s). BOT Notification No 9/2553 (4 September 2017)-check Page 12 of 14

13 Attachment 2 Examples of Risks Associated with Financial Institution s Appointment of Banking Agent The risks associated with a financial institution s appointment of banking agent can be categorized into 7 types as follows: 1. Strategic Risks: e.g. an agent s service operations do not align with the appointing financial institution s planned strategy. 2. Reputation Risks: e.g. 2.1 An agent s service performance does not meet the service standard mutually agreed by both parties under the agreement. 2.2 An agent s service performance does not meet the financial institution s service standard. 2.3 An agent s business condition deteriorates, which negatively affects the financial institution s reputation. 3. Compliance Risks: e.g. 3.1 An agent does not comply with related financial laws. 3.2 An agent does not conform to consumer protection laws. 3.3 An agent does not have adequate internal control and monitoring system to ensure the organization s compliance with the laws. 4. Operational Risks: e.g. 4.1 Uncontrollable external factors including chaos, fraud by external parties, etc. 4.2 Internal factors including: An agent s front-line personnel are not skillful to provide the pertinent financial services An agent s operating systems, the IT systems in particular, do not function properly An agent s internal control system is so ineffective that there exist internal loopholes for frequent mistakes or internal frauds An agent s security system in the service venues is not adequate or not effective. 5. Contractual Risks: e.g. 5.1 The service level agreement (SLA) is not sufficiently stringent. 5.2 The enforcement of the agency agreement is practically difficult. 6. Access Risks: e.g. 6.1 The appointing financial institution cannot sufficiently access an agent s database in order to conduct control and governance as well as facilitate audit by the BOT or other regulators. BOT Notification No 9/2553 (4 September 2017)-check Page 13 of 14

14 6.2 The complicated operating system of an agent obstructs good control and monitoring by the appointing financial institution and the regulators. 7. Concentration and Systematic Risks: e.g. many financial institutions rely on only one single agent. Disclaimer: The Association of International Banks, its directors, members and employees take no responsibility, accept no liability from any use or misuse of the information in these pages and do not attest to the correctness of the translation, if any. This translation contains privileged information. It is intended for the named recipients only. No portion of this translation may be transmitted by any means without prior written permission from the Association of International Banks. All rights reserved. BOT Notification No 9/2553 (4 September 2017)-check Page 14 of 14