“Moving Forward with Better Cooperation and Standards” Keynote

“Moving Forward with Better Cooperation and Standards”
Keynote Address
by Pongpen Ruengvirayudh
Deputy Governor for Monetary Stability
at the Thomson Reuters FX Community Forum 2015
17 March 2015
Distinguished guests,
Ladies and gentlemen,
As always, it is a pleasure to be here and I’d like to thank our host of the night Thomson Reuters - for the invitation. Since its inception, this forum has not only
provided a unique platform for market participants to meet and exchange views on
the markets, but also given us a chance to recognize and celebrate the achievements
of those who have been supportive of our markets’ continued development. So
before going any further, let me personally congratulate this year’s award winners
for a recognition well deserved!
Those of you who have observed our financial services industry for as long as I have
will know that, in order to be where we are today, we have indeed undergone
significant changes over the past decades. As a result of these adjustments, our
banks are in a much stronger position compared to the state of the 1997 crisis; our
financial markets are much deeper; and there is a greater variety of instruments
available for risk management.
But, if I could borrow from BOE Governor Mark Carney, “simply trying to avoid a
repeat of past failures should not be the height of our ambitions”. So what more can
we do to make sure that we’re not only ready to confront the problems of today, but
also those of tomorrow? This brings me to the topic of my talk today: “Moving
forward with better cooperation and standards”.
Ladies and gentlemen, we are indeed operating in an unfortunately not so benign
environment. Since the “taper tantrum” in May 2013, increased uncertainty and
volatility has remained a salient feature of emerging markets including our own.
And this picture has not been made any less complicated by the EU and Japan
running monetary policy completely opposite in stance to that of the US.
Fortunately though, while neighboring countries have experienced sharp
movements in their local currency as a result of this policy divergence, our Baht has
remained somewhat stable, thanks to improvements in our current account position
coupled with the timely reduction in oil price that has benefited an oil-importing
economy such as our own.
Despite these short-term improvements, one should not be complacent. Surely our
past experiences have taught us too well that investor sentiments can quickly take
unexpected turns. With the monetary developments mentioned before, increasing
volatility should be expected. In fact, this view of increasing uncertainties becomes
all the more thinkable given regulatory developments in advanced economies,
which many believe will likely lead to reduced market activity.
Against this backdrop, what can we do to ensure that our markets will fare through
this turbulent period with minimum disruptions? When talking about a robust and
resilient financial market, a feature that quickly springs to mind is the issue of trust
and integrity. After all, it has been this trust all along that has given the financial
system a social license to operate and thrive in our free market environment.
In normal times, it is almost too easy to forget this important fabric underpinning
our financial system. And perhaps we can be forgiven for this negligence, for the
“good equilibrium” seems almost unique. But with what’s happened in the midst of
the global financial crisis in what’s come to be called the LIBOR scandals, I’m sure it
is clear to everyone now that this need not be the case.
With the renewed attention to trust and integrity, it is no surprise that a lot of
discussions have been ongoing in the international community regarding ways to
restore confidence in the markets. In line with these ongoing developments, the
Bank of Thailand has over the years been working in close collaboration with a
number of market participants to strengthen the standards of our markets. In 2015,
we expect to make progress on at least three important initiatives, which I would
like to use this opportunity to ask for your cooperation for certain aspects that I will
be later talking about.
The first initiative, which I’m sure many of you must already be aware of, is the
launch of the code of conduct for dealers trading in the FX, derivatives and money
markets last week. Together with the BIBOR code of conduct that was launched late
last year, I hope that the standard will help guide fair and ethical practices for many
years to come. In fact, I believe their introduction is only timely in the face of the
upcoming AEC. With financial liberalization being in the forefront of the pipeline,
increased competition can only be expected in the region. This will potentially
require the Thai financial institutions to lift their business standards in order to stay
10. The second development that is still on-going is the planned replacement of the
current survey-based model of THBFIX valuations with a transactions-based
model. The change aims to institute procedures that are less sensitive to “expert”
judgments, thereby reducing the possibility of misconduct in our financial markets.
In light of this obvious benefit, it is only regrettable that the initiative has been
taking much longer than anticipated to be put in place, as the proposed model is still
not receiving acceptance from all parties involved. Of course, the change will have
some effect on the work process of both the banks and the brokers. Nevertheless, I’d
like to point out that the global trend towards greater transparency is here to stay
and we will certainly not benefit from lagging behind. As such, I’d like to ask for
your cooperation to be with us for a little longer as details are being finalized.
Without the industry support, a mere blueprint will not serve us any good in the
rainy days.
11. Last but not least, with the increasing complexity of the global financial landscape as
well as our own, I believe there is a need for greater cooperation between the
regulators and the market players, potentially in a more organized setting.
International experiences suggest a few options for us to achieve this. One route is
that a formal market committee comprising both the regulators and market
players could be established. This will serve as a platform where major stakeholders
can meet and discuss solutions to problems relating to both short-term market
conditions as well as longer-term market development. While at this stage the finer
details of this initiative are still being deliberated, I am positive that, when
eventually established, the committee will allow us to move forward together with
better cooperation and standards.
12. Ladies and gentlemen, let me conclude by saying that it has been a privilege to get to
work with everyone in this thriving industry over the past many years and to see it
grow and strengthen. I can only hope that, with cooperation from all sides, our
markets, which have served as an important funding and risk-transmission
channels to our economy, will continue to be resilient to shocks. I have to thank
Thomson Reuters once again for the invitation, and thank everyone for your