“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, 1. 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! 2. 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. 3. 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”. 4. 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. 5. 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. 6. 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. 7. 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. 8. 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. 9. 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 competitive. 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 attention.