Bank of Thailand Urges Caution on Financial Hub, Citing Money Laundering Risks
Central bank warns new legislation must guard against illicit finance and protect domestic stability, as controversial bill heads to parliament
- The Bank of Thailand (BOT) has warned that the proposed Financial Hub could become a channel for money laundering and terrorism financing if its regulations are not as stringent as the main financial system and international standards.
- To mitigate risks, the BOT insists the hub must be legally and physically separate from the domestic financial system, serve only non-residents, and grant existing regulators the authority to intervene during crises.
- The central bank has urged the government not to rush the project, emphasizing that the hub's regulatory body must be fully prepared and a clear strategic vision must be in place before operations begin to protect the country's financial credibility.
The Bank of Thailand (BOT) has issued a stern warning to the government regarding its plans to establish a new "Financial Hub," emphasising the critical need to control risks associated with money laundering and terrorism financing.
The central bank's concerns come as the draft Financial Business Hub Act prepares for its first parliamentary reading, following Cabinet approval on 15th July 2025.
In a letter dated 13th June 2025, BOT Governor Sethaput Suthiwartnarueput reiterated previous concerns, stressing that regulations within the proposed hub must meet, if not exceed, the standards of the country's main financial system and align with international norms.
"Due to more relaxed regulations, some Financial Hubs are scrutinised or perceived as conduits for illicit financial transactions, such as money laundering or terrorism financing," the letter stated.
The BOT fears that without robust oversight and enforcement, Thailand's Financial Hub could inadvertently become a loophole for regulatory evasion, severely damaging the credibility of the nation's core financial system and causing long-term harm to the country.
Protecting Domestic Stability
The central bank outlined key risk management principles that must be embedded in the draft Act to prevent the hub from undermining Thailand's financial and economic stability.
Crucially, the BOT insists that Financial Hub businesses must not serve domestic residents. The rationale is that the hub's more lenient regulations would expose Thai consumers to higher risks and potentially less stringent protection, leading to widespread repercussions if problems arise.
Furthermore, serving locals would create unfair competition with established businesses in the main financial system that operate under stricter rules.
To this end, the draft Act (Section 57) explicitly states that Financial Hub businesses should only serve non-residents (NRs).
The BOT also called for a clear separation of Financial Hub businesses from the main financial system, both in terms of their legal entities and physical operating areas.
This separation, outlined in draft Section 38, aims to contain any potential damage within the hub, preventing contagion to the broader financial system.
The central bank cited Dubai International Financial Centre as an example of a successful, clearly delineated financial free zone.
Finally, the BOT demanded mechanisms allowing existing regulatory bodies – such as the BOT itself, the Securities and Exchange Commission (SEC), and the Office of Insurance Commission (OIC) – to intervene and issue directives to Financial Hub businesses during crises (draft Sections 41 and 71).
This is deemed essential for maintaining overall financial stability, even as the hub's primary regulator focuses on promoting agile, lenient regulations.
Readiness and Strategic Vision
The central bank also warned against rushing the process, urging that the Financial Hub's regulatory body must be fully prepared before any operations are permitted.
Given the diverse nature of financial businesses expected, this body would effectively need to combine the supervisory roles of all primary regulators.
"Licensing for businesses should commence only when this readiness is achieved, to avoid risks to the stability of the financial and economic systems and to prevent damage to the country's credibility," the BOT stated.
Beyond regulatory preparedness, the BOT emphasised the need for a clear strategic vision for the hub, leveraging Thailand's strengths to gain a competitive edge and attract investment.
It cited Singapore's successful model as a wealth management and financial technology hub.
Crucially, a comprehensive supporting ecosystem is also required, going beyond just agile regulations and tax incentives.
This includes a robust legal and justice system conducive to multinational operations, a highly skilled and English-speaking workforce, strong governance and law enforcement, solid financial infrastructure, and advanced technological and innovation support.
