Foreign and domestic investors are piling pressure on Thai convenience store operator CP All, demanding tough action after an insider dealing scandal made it into a test case for corporate governance reforms.

Cracking down on financial crimes is a priority for the stock market regulator as the government tries to bring foreign cash into the financial markets of Southeast Asia's second largest economy, which has struggled since a 2014 military coup.

The regulator, however, has come under fire after it fined in December CP All Chairman Korsak Chairasmisak and two other executives a total 34 million baht ($952,914) for buying shares in cash-and-carry wholesaler Siam Makro while CP All was buying a stake in the firm.

Korsak remains in place after auditors and CP All independent directors said he should stay on, further eroding investors' confidence in a stock market that analysts have criticised for being one of the murkiest in Southeast Asia.

"The behaviour is appalling," said managing director Hugh Young at Aberdeen Asset Management Asia, which has nearly $80 billion of assets under management.

"The sanctions are too light and the more who people speak out, the better," he told Reuters.

Executives at CP All, Southeast Asia's largest food retailer by market value, declined to comment on the investor criticism or the regulatory action. The company is controlled by Thailand's richest man through one of the country's largest privately held companies.

Investors have wiped more than $1.8 billion off the company's market value in the two months since the ruling by the Securities and Exchange Commission (SEC), sending the stock down 14 percent compared to a 2 percent fall in the overall market over the same period.

Thai funds said they would stop buying into CP All until it solves corporate governance issues, chiming in with others investors including the Social Security Fund, which owns just under 1 percent of the company.

REGULATOR CRACKDOWN

Rapee Sucharitkul, secretary general of Thailand's Securities and Exchange Commission, told Reuters he welcomed the outrage among investors, describing it as market forces at work.

Rapee dismissed questions over the regulator's failure to refer the case to the public prosecutor, arguing that documents signed by CP All admitted a criminal offence and that the settlement avoids a years-long court case.

"Enforcement is very, very important," he told Reuters. "As you know in this country, one of the main criticisms has always been that people with privilege are able to get away with unlawful things."

Rapee, who took the job in August, has said the SEC plans to propose changes to the law that would make penalties harsher and blacklist executives from serving on company boards after being found guilty of insider trading. He has also imposed a deadline to clear pending cases and time limit on new ones.

Until such tougher regulations are enacted, investors and analysts said the Thai stock market would suffer.

"This is not only impacting CP Group, but also the overall Thai equity market," said Win Phromphaet, chief investment officer of CIMB-Principle Asset Management.