## _cr09149

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---

### I. GENERAL — Context and scope
- Assessment undertaken in the context of the International Monetary Fund (IMF) and the World Bank Financial Sector Assessment Program (FSAP) exercise for Thailand in January 2007.
- Covers the Bank of Thailand Automated High-Value Transfer Network (BAHTNET), a real-time gross settlement (RTGS) system.
- The Bank of Thailand (BOT) conducted a comprehensive self-assessment of BAHTNET observance of the Core Principles for Systemically Important Payment Systems (CPSIPS); the self-assessment was provided to the mission in advance.
- Thailand authorities were fully cooperative and provided all relevant documentation on time.

### A. Information and Methodology
- Methodology derived from the Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems of the IMF and the World Bank of August 2001.
- Prior to the mission, the BOT prepared a self-assessment and filled in the Questionnaire on Payment and Recommendations for Securities Settlement System (RSSS).
- Assessor used BOT self-assessment, laws, articles, brochures, guidelines, data provided during the mission, and presentations by BOT and private sector institutions.
- Assessor held daily discussions with BOT, other relevant public authorities, and private sector representatives.

### B. Institutional and Market Structure—Overview
- BOT operates under the BOT Act B.E. 2485 (1942), amended in 1998; oversight powers in payment systems are broadly derived from responsibilities for monetary policy, banking supervision and provision of payment settlement services.
- The Payment Systems Committee (PSC):
  - Set up to advise the BOT in formulating national payment system policy and defining oversight role.
  - Chaired by the Governor and composed of internal BOT executive staff and external senior experts.
  - According to a revised draft of the BOT Act, the PSC will be legally empowered to define and implement BOT oversight responsibility in payment systems.
- Electronic Transactions Commission (ETC):
  - Has legal power under Electronic Transactions Act B.E. 2544 (2001) to supervise and promote electronic transactions in Thailand.
  - Chaired by the Minister of Information and Communication Technology and composed of 12 members appointed by the cabinet.
  - The Electronic Transactions Act B.E. 2544 (2001) does not delegate responsibility to BOT directly.
  - Subordinate legislation, Royal Decree Regulating the Business of Electronic Payment Services (to be enacted), assigns BOT to license and supervise electronic payment business subject to approval of the Commission.
- Securities and Exchange Commission (SEC):
  - Regulates the securities business and is empowered to regulate, supervise and develop capital markets and securities firms.
  - Under Securities and Exchange Act B.E. 2535 (1992), SEC responsible to regulate securities clearing and settlement systems.
  - At present, BOT has no formal responsibility for securities clearing and settlement activities.
  - Revised draft BOT Act lists maintaining financial stability as a main objective; oversight of the RSSS will be a crucial BOT task, while SEC continues as regulator of RSSS.

### C. Payment Systems Infrastructure — BAHTNET and other systems
- BAHTNET:
  - Only systemically important payment system in Thailand.
  - Introduced as a real time gross settlement system in May 1995.
  - Owned and operated by the BOT.
  - Transactions processed and settled continuously and irrevocably in real-time.
  - Final settlement executed by entries to participants’ settlement or current account at the books of the BOT.
  - Bulk of large value interbank transfers routed through SWIFT network; smaller number transmitted via BOT web-based network.
  - Accepts payment instructions for interbank payments and settlement of interbank obligations from net clearing arrangements of low-value payment transactions and equities transactions.
  - Settles on a real time gross basis the cash leg of transactions in government bonds deposited at Thailand Securities Depository Co., Ltd. (TSD).
  - No minimum amount for payments through BAHTNET; handles time-critical low-value payments as well as large-value transfers.
  - In 2006:
    - BAHTNET had 65 participants.
    - On average the system settled daily 7,200 transactions.
    - The daily average value was B 595 billion.
  - Current participant composition:
    - 34 commercial banks,
    - six specialized financial institutions,
    - 14 finance companies and securities companies,
    - TSD,
    - two government agencies,
    - eight internal BOT departments.
- Other systems operated by BOT and private sector:
  - BOT owns and operates three low value payment systems: Electronic Checks Clearing system (ECS), System for Managing Automated Retail Fund Transfer (SMART), and Inter-provincial Checks Collection (B/C) system.
  - Online Retail Funds Transfer (ORFT) is owned by National ITMX Co., Ltd.
  - These systems are not considered systemically important by Thailand authorities due to relatively low transaction volume and value.

### Small-value payments and cards
- Cash transactions remain the most important payment instrument for small retail transactions and for transfers of value between individuals, which account for 9 percent of GDP.
- According to preliminary data in 2006, transfers between individuals represent 17 percent of the total noncash payment transactions.
- The use of card payments has been increasing. In 2006, the number of issued Automated Teller Machines (ATM) cards is 30 million, which is 55 percent of total saving accounts.
- The value of card transactions is about 2 percent of the total electronic payments.

### Legal basis for BAHTNET (CP I)
- There is no explicit legislation for payment systems in Thailand; the legal basis for BAHTNET and payment transfers executed in this system is defined by a set of laws, regulations, and contractual arrangements including:
  - The Bank of Thailand Act, B.E. 2485 (1942)
  - The Royal Decree Regulating the Affairs of the Bank of Thailand B.E. 2485 (1942)
  - The Commercial Banking Act, B.E. 2505 (1962)
  - The Currency Act, B.E. 2501 (1958)
  - The Civil and Commercial Code, B.E. 2468 (1925)
  - The Securities and Exchange Act, B.E. 2535 (1992)
  - The Electronic Transaction Act, B.E. 2544 (2001)
  - Consumer Protection Law, B.E. 2522 (1979)
  - The Bankruptcy Act, B.E. 2483 (1940)
- Contractual arrangements within BAHTNET are enforceable under the Civil and Commercial Code; each member signs a contract binding them to BAHTNET Regulations.
- BAHTNET Regulation (articles 40 and 41 of the BOT Regulation on BAHTNET services of 2006) defines completion of funds transfers and states that “when funds transfer via BAHTNET is completed, the funds transferring institution cannot revoke the funds transfer.”
- No explicit legal protection for settlement finality in insolvency; transactions settled in BAHTNET could, in theory, be reversed by a court decision in the event a participant becomes insolvent (though this has not occurred historically).
- Netting: BAHTNET is an RTGS system and netting does not occur. Other netting systems lack explicit legal protection for the finality of multilateral netting; a special Committee was set up to revise the Bankruptcy Law to consider explicit provision on settlement netting.
- No explicit Zero Hour Rule; Official of the Council of State provides an opinion that receivership order is effective from time read and does not have retrospective effect from 0.01 hour, but a court may not be bound by this opinion.
- Intraday liquidity collateral arrangements: BOT accepts only repurchase agreements (repos) for intraday liquidity; ILF is recognized and protected by BOT Regulation on Purchase of Debt Instruments under Repurchase Contract for Intraday Liquidity Facility (ILF) B.E. 2549 (2006).
- The Electronic Transactions Act B.E. 2544 (2001) provides legal support for electronic processing (electronic signatures, electronic record maintenance, electronic information).
- Assessment: Broadly Observed.
- Recommendation: Amend the Bankruptcy Law to provide greater certainty on protection of settlement finality (payments in BAHTNET and securities transactions in TSD).

### Rules, transparency and participant understanding (CP II)
- BAHTNET regulations and contractual arrangements identify obligations/rights of members and the system operator, including settlement arrangements, queuing, intraday liquidity, operating time, and procedures for abnormal situations.
- A User Manual covers operation steps, queuing mechanism, optimization facility, transaction status, daily settlement session, and close settlement sessions.
- Changes to BAHTNET regulations and procedures are circulated to participants (electronic notification via email; documents posted on BOT website).
- BOT provides training for new members, access to a test environment before going live, and periodic refresher training.
- Real-time information is available to participants on ingoing/outgoing transactions, queue status, and account positions; participants can monitor and control their exposures.
- Assessment: Observed.

### Credit and liquidity risk management (CP III)
- BAHTNET is an RTGS system that settles in central bank money and allows access to unlimited intraday credit provided against collateral; no interest or fees on intraday liquidity during the day.
- Participants are protected against credit risk because settlement is by funds held in settlement or current account at the BOT with immediate finality; BOT is protected as settlement/current accounts cannot be overdrawn.
- Liquidity management mechanisms:
  - Queuing Mechanism: allows senders to assign priority among queued transactions; unsettled instructions in queue at end-of-day are flushed and must be re-entered (rare occurrence); cut-off time for customer transfers earlier than end-of-day helps manage overnight balances.
  - Gridlock Resolution: system searches for a set of instructions that, if executed, yield positive net positions for transferors and offsets related transactions simultaneously to reduce liquidity needs.
  - ILF: Intraday Facility is fully collateralized, interest-free during the day. Available to direct and associate members who are financial institutions under BOT supervision; not available to nonfinancial institutions such as securities companies and government agencies.
    - Financial institutions with daily average value of funds transfer over B 500 million are required to maintain an ILF capacity equivalent to not less than 10 percent of the average value of its funds transfers in BAHTNET in the same fortnight of the previous month.
    - If members do not meet the conditions, they will be charged three times the normal rate of transaction fee.
    - To receive intraday liquidity, each member must set aside eligible securities to a securities sub-account labeled “ILF” at BOT.
    - Participants can request use of check clearing credit balance for ILF repayment and BAHTNET transactions.
    - Collateral: government bonds and securities guaranteed by the government denominated in baht; valued daily mark-to-market with haircuts varying by maturity.
  - Pricing incentive: fee structure encourages early submission; three time zones with ascending fee rates: 8:30–12:00 (lowest), 12:00–16:00, 16:00–17:30 (highest).
  - Throughput guideline: members must submit transactions amounting to, at least, 30 percent of the expected total value of that day or average value of the same fortnight of previous month by noon, and at least 70 percent by 15:00.
- BOT is developing a Liquidity watch (real-time monitoring tool) and a simulation tool for payment scenarios to assess system consequences and establish optimal liquidity levels.
- Information systems: participants have real-time access to queue, settled transactions, incoming/outgoing payments, and settlement account balances via BAHTNET terminals and SWIFT messages.
- Crisis management: Payment Systems Department monitors participants continuously; Head of Payment Systems Department can convene the Crisis Management Committee (CMC) composed of BOT top executives to diagnose and propose solutions (e.g., relaxing ILF regulations).
- Assessment: Observed.

### Settlement finality and timing (CP IV)
- BAHTNET provides real-time immediate settlement finality with simultaneous debit/credit of BOT settlement/current accounts; settled payments are irrevocable, unconditional and cannot be reversed by sender or third party.
- Risk noted: settlement might be challenged if the sending bank is declared bankrupt or placed under public administration (as noted under CP I).
- Interval: payments are settled during the day in real time; unsettled payments at end-of-day are removed from queue and must be resubmitted the following day.
- Rejection/cancellation: sending bank may cancel an outgoing payment in the queue, but receiving bank consent is required if the receiving bank has been advised of the expected payment.
- Operating timetable: standard settlement hours are 08:30–17:30; 30 minutes after close members can download reports for reconciliation. BOT may vary operating hours and may charge fees for transactions after operating hours; decision to extend hours is by BAHTNET manager.
- Assessment: Broadly Observed.
- Recommendation reiterated: amend Bankruptcy Law to provide greater certainty on settlement finality.

### Multilateral netting (CP V)
- BAHTNET is RTGS with continuous gross settlement during the day with intraday finality.
- Assessment: Not applicable.

### Settlement asset quality (CP VI)
- BAHTNET settles in central bank money (claims on BOT) and provides settlement only in Baht.
- Assessment: Observed.

### Security, operational reliability and contingency (CP VII)
- BOT has defined security policies and business continuity objectives; BAHTNET is a separate stand-alone module; BOT benchmarks operations against standards such as ISO 17799:2005 and ISO 9364.
- IT-Department responsible for security; regular security risk analyses and continuous monitoring; incidents logged and investigated.
- Contingency arrangements:
  - Backup sites: Surawongse Office ~10 kilometers from primary site; 2nd backup site at Puttamontol ~35 kilometers from main site being set up to replace Surawongse; backups mirror production transactions in real time (hot backup), preventing loss of transaction data; backup site can continue operations longer term.
  - Communication lines duplication and dial-up backup serviced by different providers.
  - Benchmark downtime of BAHTNET should not be more than four hours; agreements with IT vendors to provide emergency services within a few hours.
  - Operational rehearsals with IT vendors and BAHTNET members are held periodically.
- Contingency exercises:
  - Partial test: BCP testing by operating staff, at least every six months.
  - Scenario test: programmed to cover all possibilities (front-end processor failure, communication failure, host computer failure, disaster).
  - Full scale test: held at least once a year.
  - External testing: with RSSS, vendors, network providers regularly.
  - Industry wide test (IWT): performed at least once a year using backup environment.
- Protection of data communication: two networks—SWIFT (bulk of transactions above 75 percent transmitted using SWIFT V-copy services) and BAHTNET network (end-to-end encryption with PKI); firewalls in place.
- Audit trails: all transactions traceable end-to-end with unique transaction ID; logs of transaction status changes.
- Development and procurement: change management program; all changes require user testing and signoff.
- Availability and capacity:
  - Average annual availability of BAHTNET (all components) was 99.8 percent for 2005 and 99.98 percent for 2006.
  - System designed with daily capacity of 20,000 transactions; current number averages 7,200 transactions a day.
  - System uses on average 45 percent of its capacity.
- Audits: regularly audited by Internal Audit Department; IT security risk and BCP assessed by external auditor regularly.
- Assessment: Observed.
- Recommendations:
  - Extend scope of external audit of BAHTNET IT-infrastructure to include internal procedures and routines for business continuity.
  - Carry out a separate contingency test specifically for BAHTNET.
  - Request BAHTNET participants, including TSD, to submit summary of contingency plan test and results of regular external audits of security of their internal payment infrastructure.

### Efficiency, practicality and pricing (CP VIII)
- BAHTNET functionalities: sending/receiving payments, queuing, inquiry, data collecting, optimizing mechanism for gridlocks.
- Intraday liquidity based on repo transactions; no restriction on liquidity if participant has eligible securities.
- Operating hours: 08:30–17:30; BOT may extend if required; settlement value available instantaneously after settlement.
- Processing speed: no technical constraint; main constraint is participant liquidity management.
- Capacity and usage: designed for 20,000 transactions daily; current average 7,200 transactions a day.
- Cost recovery and pricing:
  - Monthly fee: B 3,500 for direct participants and B 500 for associated participants.
  - Time-based transaction fees: B 5 per transaction between 8:30 and 12:00; B 10 for 12:00–16:00; B 200 for 16:00–17:30.
  - From strict accounting viewpoint only 50 percent of all costs (operating, development and investment costs) are covered by revenues.
- Assessment: Observed.
- Recommendation: Revise methodology for pricing structure to take into account total cost and benefits to the entire economy such as systemic risk reduction.

### Access and participation criteria (CP IX)
- BAHTNET access is open to banks, nonbank financial institutions and government agencies; participants must be qualified to open an account at BOT, demonstrate necessary operational capacity and adequate liquidity.
- Nonfinancial institution may participate if total assets not less than B 200 million and makes or receives high-value funds transfers through clearing system or BAHTNET as 3rd party.
- Direct participant: can send/receive funds transfer and perform functions using its own workstation subsystem connected to BAHTNET Host Computer (BHC).
- Associate participant: has an account at BOT but no workstation subsystem. Direct and associate members have equal access to system facilities.
- Access rules are publicly disclosed on BOT website and in circulated documents.
- Technical requirements: BAHTNET terminal access via SWIFT and Web interface; SWIFT enables straight-through processing; web-based channel effective for smaller-scale members. Web-based price is a bit higher; SWIFT users bear additional SWIFT costs.
- Exit rules: member may resign with 30 days written notice; BOT may terminate services for non-compliance or systemic risk.
- Assessment: Observed.

### Governance, accountability and transparency (CP X)
- Ownership and operation: BAHTNET is owned and operated by BOT. Payment Operations Office (division of PSD) manages day-to-day operations; PSD carries out enhancements under policy guidance of PSC; PSD reports to Assistant Governor, Information Technology Group.
- Financial targets: BAHTNET introduced to reduce systemic risk and enhance electronic payments; full cost recovery is not an objective.
- Information availability: BOT website provides detailed information; BAHTNET terminals provide real-time operational information.
- Consultation: operational/technical working groups formed for user feedback on new projects; they do not meet regularly; PSD holds bilateral meetings with members’ managers/CEOs.
- Assessment: Observed.
- Recommendation: Set up a permanent advisory user group that meets regularly to discuss technical and business features of BAHTNET.

### Central Bank responsibilities in applying CPSIPS
- Responsibility A: BOT objectives and disclosure
  - No specific legislation empowering BOT to oversee payment systems; Royal Decree B.E. 2485 (1942) authorizes BOT to “administrate interbank clearing systems”; Commercial Banking Act B.E. 2505 (1962) empowers BOT to supervise payment systems operated by commercial banks; Electronic Transactions Act B.E. 2544 (2001) authorizes BOT to regulate electronic payments (legislation for regulation in drafted Royal Decree).
  - PSC set up to advise BOT on national payment system policy and oversight; PSC chaired by Governor and served by PSD. Draft amending BOT Act would legally empower PSC.
  - Separation exists within PSD between oversight (Payment Systems Policy and Oversight Office) and operations (Payment Operations Office).
  - BOT publicly discloses its roles and policies via annual reports and website.
  - Assessment: Observed.
  - Recommendations:
    - Avoid potential conflicts of interest between BOT oversight and BOT as operator when formalizing PSC function/responsibility.
    - Enact revised BOT Act to provide more transparency of BOT objectives in payment systems.
- Responsibility B: Ensure compliance of systems it operates
  - Payment Systems Policy and Oversight Office monitors BAHTNET activities and analyzes associated risks; it has carried out assessments of BAHTNET against Core Principles (2004 report and 2006 update).
  - Assessment: Observed.
- Responsibility C: Oversight of systems it does not operate
  - Payment Systems Policy and Oversight Office has about 50 staff; developing oversight methods and procedures (regular monitoring, data collection, reporting, on-site oversight with Supervision Group support).
  - At present no privately operated system in Thailand is considered systemically important by BOT.
  - Assessment: Observed.
  - Recommendation: Strengthen oversight by developing oversight methodology and procedures, including prioritization, selection of oversight instruments, and periodicity of on-site inspection.
- Responsibility D: Domestic and international cooperation
  - Domestic: BOT cooperates with SEC and other authorities; MOU with SEC for cooperation on regulatory responsibilities for clearing and settlement facilities; no regular meetings to discuss common technical/policy issues (e.g., TSD interaction with BAHTNET).
  - International: BOT cooperates with other central banks (regional and beyond), hosts regional conferences, and is developing cooperative oversight framework for cross-border linkages.
  - Assessment: Observed.
  - Recommendation: Strengthen cooperation with SEC by having regular meetings to discuss common issues, including operations of TSD and interaction with BAHTNET.

### Summary of recommended actions (extracted)
- Legal foundation / Settlement finality (CP I / CP IV):
  - Amend the Bankruptcy Law to provide greater certainty that payment transactions settled in BAHTNET and securities transactions settled in TSD cannot be revoked in the event of insolvency.
- Security and operational reliability / contingency (CP VII):
  - Extend scope of external audit of BAHTNET IT-infrastructure to include internal procedures and routines for business continuity.
  - Carry out a separate contingency test specifically for BAHTNET.
  - Request BAHTNET participants, including TSD, to submit summaries of contingency plan tests and results of regular external audits of their internal payment infrastructure security.
- Efficiency and pricing (CP VIII):
  - Revise the methodology used to determine the pricing structure to take into account total cost and benefits to the entire economy (e.g., systemic risk reduction).
- Governance (CP X):
  - Set up a permanent advisory user group meeting regularly to discuss technical and business features of BAHTNET.
- Central bank responsibilities:
  - Enact revised BOT Act to provide more transparency of BOT payment system objectives.
  - Avoid conflicts of interest between BOT oversight function and BOT’s role as operator when formalizing PSC.
  - Strengthen BOT oversight by developing methods/procedures (prioritization, oversight instruments, periodic on-site inspection).
  - Strengthen cooperation with SEC via regular meetings on common issues including TSD–BAHTNET interaction.

*Source: IMF detailed assessment of BAHTNET observance of the Core Principles for Systemically Important Payment Systems and central bank responsibilities (as provided in the supplied content).*

### 1.  Detailed Assessment of the Observance of the Core Principles for

### 1.  Detailed Assessment of the Observance of the Core Principles for 

### I. GENERAL — Context and scope
- Assessment undertaken in the context of the International Monetary Fund (IMF) and the World Bank Financial Sector Assessment Program (FSAP) exercise for Thailand in January 2007.
- Covers the Bank of Thailand Automated High-Value Transfer Network (BAHTNET), a real-time gross settlement (RTGS) system.
- The Bank of Thailand (BOT) conducted a comprehensive self-assessment of BAHTNET observance of the Core Principles for Systemically Important Payment Systems (CPSIPS); the self-assessment was provided to the mission in advance.
- Thailand authorities were fully cooperative and provided all relevant documentation on time.

### A. Information and Methodology
- Methodology derived from the Guidance Note for Assessing Observance of Core Principles for Systemically Important Payment Systems of the IMF and the World Bank of August 2001.
- Prior to the mission, the BOT prepared a self-assessment and filled in the Questionnaire on Payment and Recommendations for Securities Settlement System (RSSS).
- Assessor used BOT self-assessment, laws, articles, brochures, guidelines, data provided during the mission, and presentations by BOT and private sector institutions.
- Assessor held daily discussions with BOT, other relevant public authorities, and private sector representatives.

### B. Institutional and Market Structure—Overview
- BOT operates under the BOT Act B.E. 2485 (1942), amended in 1998; oversight powers in payment systems are broadly derived from responsibilities for monetary policy, banking supervision and provision of payment settlement services.
- The Payment Systems Committee (PSC):
  - Set up to advise the BOT in formulating national payment system policy and defining oversight role.
  - Chaired by the Governor and composed of internal BOT executive staff and external senior experts.
  - According to a revised draft of the BOT Act, the PSC will be legally empowered to define and implement BOT oversight responsibility in payment systems.
- Electronic Transactions Commission (ETC):
  - Has legal power under Electronic Transactions Act B.E. 2544 (2001) to supervise and promote electronic transactions in Thailand.
  - Chaired by the Minister of Information and Communication Technology and composed of 12 members appointed by the cabinet.
  - The Electronic Transactions Act B.E. 2544 (2001) does not delegate responsibility to BOT directly.
  - Subordinate legislation, Royal Decree Regulating the Business of Electronic Payment Services (to be enacted), assigns BOT to license and supervise electronic payment business subject to approval of the Commission.
- Securities and Exchange Commission (SEC):
  - Regulates the securities business and is empowered to regulate, supervise and develop capital markets and securities firms.
  - Under Securities and Exchange Act B.E. 2535 (1992), SEC responsible to regulate securities clearing and settlement systems.
  - At present, BOT has no formal responsibility for securities clearing and settlement activities.
  - Revised draft BOT Act lists maintaining financial stability as a main objective; oversight of the RSSS will be a crucial BOT task, while SEC continues as regulator of RSSS.

### C. Payment Systems Infrastructure — BAHTNET and other systems
- BAHTNET:
  - Only systemically important payment system in Thailand.
  - Introduced as a real time gross settlement system in May 1995.
  - Owned and operated by the BOT.
  - Transactions processed and settled continuously and irrevocably in real-time.
  - Final settlement executed by entries to participants’ settlement or current account at the books of the BOT.
  - Bulk of large value interbank transfers routed through SWIFT network; smaller number transmitted via BOT web-based network.
  - Accepts payment instructions for interbank payments and settlement of interbank obligations from net clearing arrangements of low-value payment transactions and equities transactions.
  - Settles on a real time gross basis the cash leg of transactions in government bonds deposited at Thailand Securities Depository Co., Ltd. (TSD).
  - No minimum amount for payments through BAHTNET; handles time-critical low-value payments as well as large-value transfers.
  - In 2006:
    - BAHTNET had 65 participants.
    - On average the system settled daily 7,200 transactions.
    - The daily average value was B 595 billion.
  - Current participant composition:
    - 34 commercial banks,
    - six specialized financial institutions,
    - 14 finance companies and securities companies,
    - TSD,
    - two government agencies,
    - eight internal BOT departments.
- Other systems operated by BOT and private sector:
  - BOT owns and operates three low value payment systems: Electronic Checks Clearing system (ECS), System for Managing Automated Retail Fund Transfer (SMART), and Inter-provincial Checks Collection (B/C) system.
  - Online Retail Funds Transfer (ORFT) is owned by National ITMX Co., Ltd.
  - These systems are not considered systemically important by Thailand authorities due to relatively low transaction volume and value.

*Source: IMF/World Bank FSAP assessment materials provided in the referenced chapter.*

### 11.      Cash transactions are still the most important payment instrument for small retail

### _cr09149 - 11.      Cash transactions are still the most important payment instrument for small retail

### Small-value payments and cards
- Cash transactions remain the most important payment instrument for small retail transactions and for transfers of value between individuals, which account for 9 percent of GDP.
- According to preliminary data in 2006, transfers between individuals represent 17 percent of the total noncash payment transactions.
- The use of card payments has been increasing. In 2006, the number of issued Automated Teller Machines (ATM) cards is 30 million, which is 55 percent of total saving accounts.
- The value of card transactions is about 2 percent of the total electronic payments.

### Legal basis for BAHTNET (CP I)
- There is no explicit legislation for payment systems in Thailand; the legal basis for BAHTNET and payment transfers executed in this system is defined by a set of laws, regulations, and contractual arrangements including:
  - The Bank of Thailand Act, B.E. 2485 (1942)
  - The Royal Decree Regulating the Affairs of the Bank of Thailand B.E. 2485 (1942)
  - The Commercial Banking Act, B.E. 2505 (1962)
  - The Currency Act, B.E. 2501 (1958)
  - The Civil and Commercial Code, B.E. 2468 (1925)
  - The Securities and Exchange Act, B.E. 2535 (1992)
  - The Electronic Transaction Act, B.E. 2544 (2001)
  - Consumer Protection Law, B.E. 2522 (1979)
  - The Bankruptcy Act, B.E. 2483 (1940)
- Contractual arrangements within BAHTNET are enforceable under the Civil and Commercial Code; each member signs a contract binding them to BAHTNET Regulations.
- BAHTNET Regulation (articles 40 and 41 of the BOT Regulation on BAHTNET services of 2006) defines completion of funds transfers and states that “when funds transfer via BAHTNET is completed, the funds transferring institution cannot revoke the funds transfer.”
- No explicit legal protection for settlement finality in insolvency; transactions settled in BAHTNET could, in theory, be reversed by a court decision in the event a participant becomes insolvent (though this has not occurred historically).
- Netting: BAHTNET is an RTGS system and netting does not occur. Other netting systems lack explicit legal protection for the finality of multilateral netting; a special Committee was set up to revise the Bankruptcy Law to consider explicit provision on settlement netting.
- No explicit Zero Hour Rule; Official of the Council of State provides an opinion that receivership order is effective from time read and does not have retrospective effect from 0.01 hour, but a court may not be bound by this opinion.
- Intraday liquidity collateral arrangements: BOT accepts only repurchase agreements (repos) for intraday liquidity; ILF is recognized and protected by BOT Regulation on Purchase of Debt Instruments under Repurchase Contract for Intraday Liquidity Facility (ILF) B.E. 2549 (2006).
- The Electronic Transactions Act B.E. 2544 (2001) provides legal support for electronic processing (electronic signatures, electronic record maintenance, electronic information).
- Assessment: Broadly Observed.
- Recommendation: Amend the Bankruptcy Law to provide greater certainty on protection of settlement finality (payments in BAHTNET and securities transactions in TSD).

### Rules, transparency and participant understanding (CP II)
- BAHTNET regulations and contractual arrangements identify obligations/rights of members and the system operator, including settlement arrangements, queuing, intraday liquidity, operating time, and procedures for abnormal situations.
- A User Manual covers operation steps, queuing mechanism, optimization facility, transaction status, daily settlement session, and close settlement sessions.
- Changes to BAHTNET regulations and procedures are circulated to participants (electronic notification via email; documents posted on BOT website).
- BOT provides training for new members, access to a test environment before going live, and periodic refresher training.
- Real-time information is available to participants on ingoing/outgoing transactions, queue status, and account positions; participants can monitor and control their exposures.
- Assessment: Observed.

### Credit and liquidity risk management (CP III)
- BAHTNET is an RTGS system that settles in central bank money and allows access to unlimited intraday credit provided against collateral; no interest or fees on intraday liquidity during the day.
- Participants are protected against credit risk because settlement is by funds held in settlement or current account at the BOT with immediate finality; BOT is protected as settlement/current accounts cannot be overdrawn.
- Liquidity management mechanisms:
  - Queuing Mechanism: allows senders to assign priority among queued transactions; unsettled instructions in queue at end-of-day are flushed and must be re-entered (rare occurrence); cut-off time for customer transfers earlier than end-of-day helps manage overnight balances.
  - Gridlock Resolution: system searches for a set of instructions that, if executed, yield positive net positions for transferors and offsets related transactions simultaneously to reduce liquidity needs.
  - ILF: Intraday Facility is fully collateralized, interest-free during the day. Available to direct and associate members who are financial institutions under BOT supervision; not available to nonfinancial institutions such as securities companies and government agencies.
    - Financial institutions with daily average value of funds transfer over B 500 million are required to maintain an ILF capacity equivalent to not less than 10 percent of the average value of its funds transfers in BAHTNET in the same fortnight of the previous month.
    - If members do not meet the conditions, they will be charged three times the normal rate of transaction fee.
    - To receive intraday liquidity, each member must set aside eligible securities to a securities sub-account labeled “ILF” at BOT.
    - Participants can request use of check clearing credit balance for ILF repayment and BAHTNET transactions.
    - Collateral: government bonds and securities guaranteed by the government denominated in baht; valued daily mark-to-market with haircuts varying by maturity.
  - Pricing incentive: fee structure encourages early submission; three time zones with ascending fee rates: 8:30–12:00 (lowest), 12:00–16:00, 16:00–17:30 (highest).
  - Throughput guideline: members must submit transactions amounting to, at least, 30 percent of the expected total value of that day or average value of the same fortnight of previous month by noon, and at least 70 percent by 15:00.
- BOT is developing a Liquidity watch (real-time monitoring tool) and a simulation tool for payment scenarios to assess system consequences and establish optimal liquidity levels.
- Information systems: participants have real-time access to queue, settled transactions, incoming/outgoing payments, and settlement account balances via BAHTNET terminals and SWIFT messages.
- Crisis management: Payment Systems Department monitors participants continuously; Head of Payment Systems Department can convene the Crisis Management Committee (CMC) composed of BOT top executives to diagnose and propose solutions (e.g., relaxing ILF regulations).
- Assessment: Observed.

### Settlement finality and timing (CP IV)
- BAHTNET provides real-time immediate settlement finality with simultaneous debit/credit of BOT settlement/current accounts; settled payments are irrevocable, unconditional and cannot be reversed by sender or third party.
- Risk noted: settlement might be challenged if the sending bank is declared bankrupt or placed under public administration (as noted under CP I).
- Interval: payments are settled during the day in real time; unsettled payments at end-of-day are removed from queue and must be resubmitted the following day.
- Rejection/cancellation: sending bank may cancel an outgoing payment in the queue, but receiving bank consent is required if the receiving bank has been advised of the expected payment.
- Operating timetable: standard settlement hours are 08:30–17:30; 30 minutes after close members can download reports for reconciliation. BOT may vary operating hours and may charge fees for transactions after operating hours; decision to extend hours is by BAHTNET manager.
- Assessment: Broadly Observed.
- Recommendation reiterated: amend Bankruptcy Law to provide greater certainty on settlement finality.

### Multilateral netting (CP V)
- BAHTNET is RTGS with continuous gross settlement during the day with intraday finality.
- Assessment: Not applicable.

### Settlement asset quality (CP VI)
- BAHTNET settles in central bank money (claims on BOT) and provides settlement only in Baht.
- Assessment: Observed.

### Security, operational reliability and contingency (CP VII)
- BOT has defined security policies and business continuity objectives; BAHTNET is a separate stand-alone module; BOT benchmarks operations against standards such as ISO 17799:2005 and ISO 9364.
- IT-Department responsible for security; regular security risk analyses and continuous monitoring; incidents logged and investigated.
- Contingency arrangements:
  - Backup sites: Surawongse Office ~10 kilometers from primary site; 2nd backup site at Puttamontol ~35 kilometers from main site being set up to replace Surawongse; backups mirror production transactions in real time (hot backup), preventing loss of transaction data; backup site can continue operations longer term.
  - Communication lines duplication and dial-up backup serviced by different providers.
  - Benchmark downtime of BAHTNET should not be more than four hours; agreements with IT vendors to provide emergency services within a few hours.
  - Operational rehearsals with IT vendors and BAHTNET members are held periodically.
- Contingency exercises:
  - Partial test: BCP testing by operating staff, at least every six months.
  - Scenario test: programmed to cover all possibilities (front-end processor failure, communication failure, host computer failure, disaster).
  - Full scale test: held at least once a year.
  - External testing: with RSSS, vendors, network providers regularly.
  - Industry wide test (IWT): performed at least once a year using backup environment.
- Protection of data communication: two networks—SWIFT (bulk of transactions above 75 percent transmitted using SWIFT V-copy services) and BAHTNET network (end-to-end encryption with PKI); firewalls in place.
- Audit trails: all transactions traceable end-to-end with unique transaction ID; logs of transaction status changes.
- Development and procurement: change management program; all changes require user testing and signoff.
- Availability and capacity:
  - Average annual availability of BAHTNET (all components) was 99.8 percent for 2005 and 99.98 percent for 2006.
  - System designed with daily capacity of 20,000 transactions; current number averages 7,200 transactions a day.
  - System uses on average 45 percent of its capacity.
- Audits: regularly audited by Internal Audit Department; IT security risk and BCP assessed by external auditor regularly.
- Assessment: Observed.
- Recommendations:
  - Extend scope of external audit of BAHTNET IT-infrastructure to include internal procedures and routines for business continuity.
  - Carry out a separate contingency test specifically for BAHTNET.
  - Request BAHTNET participants, including TSD, to submit summary of contingency plan test and results of regular external audits of security of their internal payment infrastructure.

### Efficiency, practicality and pricing (CP VIII)
- BAHTNET functionalities: sending/receiving payments, queuing, inquiry, data collecting, optimizing mechanism for gridlocks.
- Intraday liquidity based on repo transactions; no restriction on liquidity if participant has eligible securities.
- Operating hours: 08:30–17:30; BOT may extend if required; settlement value available instantaneously after settlement.
- Processing speed: no technical constraint; main constraint is participant liquidity management.
- Capacity and usage: designed for 20,000 transactions daily; current average 7,200 transactions a day.
- Cost recovery and pricing:
  - Monthly fee: B 3,500 for direct participants and B 500 for associated participants.
  - Time-based transaction fees: B 5 per transaction between 8:30 and 12:00; B 10 for 12:00–16:00; B 200 for 16:00–17:30.
  - From strict accounting viewpoint only 50 percent of all costs (operating, development and investment costs) are covered by revenues.
- Assessment: Observed.
- Recommendation: Revise methodology for pricing structure to take into account total cost and benefits to the entire economy such as systemic risk reduction.

### Access and participation criteria (CP IX)
- BAHTNET access is open to banks, nonbank financial institutions and government agencies; participants must be qualified to open an account at BOT, demonstrate necessary operational capacity and adequate liquidity.
- Nonfinancial institution may participate if total assets not less than B 200 million and makes or receives high-value funds transfers through clearing system or BAHTNET as 3rd party.
- Direct participant: can send/receive funds transfer and perform functions using its own workstation subsystem connected to BAHTNET Host Computer (BHC).
- Associate participant: has an account at BOT but no workstation subsystem. Direct and associate members have equal access to system facilities.
- Access rules are publicly disclosed on BOT website and in circulated documents.
- Technical requirements: BAHTNET terminal access via SWIFT and Web interface; SWIFT enables straight-through processing; web-based channel effective for smaller-scale members. Web-based price is a bit higher; SWIFT users bear additional SWIFT costs.
- Exit rules: member may resign with 30 days written notice; BOT may terminate services for non-compliance or systemic risk.
- Assessment: Observed.

### Governance, accountability and transparency (CP X)
- Ownership and operation: BAHTNET is owned and operated by BOT. Payment Operations Office (division of PSD) manages day-to-day operations; PSD carries out enhancements under policy guidance of PSC; PSD reports to Assistant Governor, Information Technology Group.
- Financial targets: BAHTNET introduced to reduce systemic risk and enhance electronic payments; full cost recovery is not an objective.
- Information availability: BOT website provides detailed information; BAHTNET terminals provide real-time operational information.
- Consultation: operational/technical working groups formed for user feedback on new projects; they do not meet regularly; PSD holds bilateral meetings with members’ managers/CEOs.
- Assessment: Observed.
- Recommendation: Set up a permanent advisory user group that meets regularly to discuss technical and business features of BAHTNET.

### Central Bank responsibilities in applying CPSIPS
- Responsibility A: BOT objectives and disclosure
  - No specific legislation empowering BOT to oversee payment systems; Royal Decree B.E. 2485 (1942) authorizes BOT to “administrate interbank clearing systems”; Commercial Banking Act B.E. 2505 (1962) empowers BOT to supervise payment systems operated by commercial banks; Electronic Transactions Act B.E. 2544 (2001) authorizes BOT to regulate electronic payments (legislation for regulation in drafted Royal Decree).
  - PSC set up to advise BOT on national payment system policy and oversight; PSC chaired by Governor and served by PSD. Draft amending BOT Act would legally empower PSC.
  - Separation exists within PSD between oversight (Payment Systems Policy and Oversight Office) and operations (Payment Operations Office).
  - BOT publicly discloses its roles and policies via annual reports and website.
  - Assessment: Observed.
  - Recommendations:
    - Avoid potential conflicts of interest between BOT oversight and BOT as operator when formalizing PSC function/responsibility.
    - Enact revised BOT Act to provide more transparency of BOT objectives in payment systems.

- Responsibility B: Ensure compliance of systems it operates
  - Payment Systems Policy and Oversight Office monitors BAHTNET activities and analyzes associated risks; it has carried out assessments of BAHTNET against Core Principles (2004 report and 2006 update).
  - Assessment: Observed.

- Responsibility C: Oversight of systems it does not operate
  - Payment Systems Policy and Oversight Office has about 50 staff; developing oversight methods and procedures (regular monitoring, data collection, reporting, on-site oversight with Supervision Group support).
  - At present no privately operated system in Thailand is considered systemically important by BOT.
  - Assessment: Observed.
  - Recommendation: Strengthen oversight by developing oversight methodology and procedures, including prioritization, selection of oversight instruments, and periodicity of on-site inspection.

- Responsibility D: Domestic and international cooperation
  - Domestic: BOT cooperates with SEC and other authorities; MOU with SEC for cooperation on regulatory responsibilities for clearing and settlement facilities; no regular meetings to discuss common technical/policy issues (e.g., TSD interaction with BAHTNET).
  - International: BOT cooperates with other central banks (regional and beyond), hosts regional conferences, and is developing cooperative oversight framework for cross-border linkages.
  - Assessment: Observed.
  - Recommendation: Strengthen cooperation with SEC by having regular meetings to discuss common issues, including operations of TSD and interaction with BAHTNET.

### Summary of recommended actions (extracted)
- Legal foundation / Settlement finality (CP I / CP IV):
  - Amend the Bankruptcy Law to provide greater certainty that payment transactions settled in BAHTNET and securities transactions settled in TSD cannot be revoked in the event of insolvency.
- Security and operational reliability / contingency (CP VII):
  - Extend scope of external audit of BAHTNET IT-infrastructure to include internal procedures and routines for business continuity.
  - Carry out a separate contingency test specifically for BAHTNET.
  - Request BAHTNET participants, including TSD, to submit summaries of contingency plan tests and results of regular external audits of their internal payment infrastructure security.
- Efficiency and pricing (CP VIII):
  - Revise the methodology used to determine the pricing structure to take into account total cost and benefits to the entire economy (e.g., systemic risk reduction).
- Governance (CP X):
  - Set up a permanent advisory user group meeting regularly to discuss technical and business features of BAHTNET.
- Central bank responsibilities:
  - Enact revised BOT Act to provide more transparency of BOT payment system objectives.
  - Avoid conflicts of interest between BOT oversight function and BOT’s role as operator when formalizing PSC.
  - Strengthen BOT oversight by developing methods/procedures (prioritization, oversight instruments, periodic on-site inspection).
  - Strengthen cooperation with SEC via regular meetings on common issues including TSD–BAHTNET interaction.

*Source: IMF detailed assessment of BAHTNET observance of the Core Principles for Systemically Important Payment Systems and central bank responsibilities (as provided in the supplied content).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09149.pdf_